NAYPYITAW -- Thai industrial estate developer Amata Corp. plans to build an industrial complex with an investment of $1 billion in Yangon, Myanmar's biggest city. The complex will provide important industrial infrastructure in a nation with few global-standard industrial zones suitable for foreign companies.
Amata recently signed a land lease agreement and joint venture agreement with the Myanmar Ministry of Construction in the country's capital of Naypyitaw, securing the right to use 800 hectares of land in the northeastern part of Yangon for 70 years. Amata's investment will include construction of 600 megawatt power plant.
"Myanmar is a gateway to the Indian Ocean for the GMS (Greater Mekong Sub-region). That is why we've chosen Myanmar," Vikrom Kromadit, chairman and CEO of Amata, said during an interview with the Nikkei Asian Review after a ceremony to mark the signing. Amata estimates that tenant companies' long-term investments in the new industrial zone will eventually reach $3.7 billion.
As a GMS country along with Vietnam, Thailand, Cambodia, Laos and China, Myanmar once drew strong attention from foreign companies as a frontier market with room for substantial economic growth, but the presence of manufacturers there has not increased as sharply as expected.
Despite an attractive domestic market with a population of 54 million and availability of inexpensive labor, foreign manufacturers have shunned Myanmar due to its lack of industrial zones built to global standards, and its power generation and logistics infrastructure remain meager.
The Myanmar Investment Commission authorized applications for foreign direct investments from the manufacturing sector totaling $1.3 billion in 2019, according to its latest statistics. The amount is an increase of 22% from the previous year, but is still small.
Amata's entry into Myanmar is expected to encourage foreign manufacturers to invest in the country as it has a record of developing various industrial complexes in its industrialized neighbor, Thailand.
The project, called Yangon Amata Smart and Eco City, will develop an industrial site on 75% of the total land lot, while the remainder will accommodate commercial facilities and housing units. It will be implemented in several phases over the next five years.
Amata, together with Thai state-owned energy company PTT, plans to build a power plant in the industrial zone. Starting at a small scale to meet the needs of early customers, it plans to eventually expand capacity to 600MW and supply electricity to the national grid. The cost of the power plant alone will be $500 million to $600 million.
When completed, the complex is expected to accommodate 120 to 150 factories. It will be larger than the 630 hectares developed so far in the Thilawa Special Economic Zone, also in the suburbs of Yangon, and is Myanmar's sole industrial complex with infrastructure to meet foreign manufacturers' standards.
A joint venture to manage the project is owned 80% by Amata and 20% by the construction ministry. The first phase to develop an 80-hectare site will begin between February and March according to Yasuo Tsutsui, managing director of the joint company.
"The first factory located inside the city will be able to start construction by the third quarter [this year], and will start operations in 2021," Tsutsui said.
In the Thilawa SEZ, located southeast of Yangon, infrastructure projects such as building roads and power generation and port facilities have been carried out with economic assistance from Japan. While more than 100 companies are operating in the zone or planning to do so, more than half are Japanese companies, including Toyota Motor and Suzuki Motor.
The Amata-led project will offer a new option for companies considering entering Myanmar.
Amata hopes to attract plants to the new industrial zone to produce daily household goods, construction materials and processed foods for domestic consumption in Myanmar, and to supply parts and materials to other factories in the country.
As Yangon is connected to Thailand via roads in the East-West Economic Corridor, the new industrial zone will also serve as an option for diversifying supply chains of companies operating in Thailand. "Some 20 companies have already started contemplating their advance into Yangon Smart and Eco City," Tsutsui said.
Simple comparison of property prices is difficult because they are affected by various factors such as length of use. Nevertheless, $80 per sq. meter in the Thilawa SEZ is considered too high for small- to mid-size manufacturers, which are sensitive to returns on investments.
At present, companies have to make a high-stakes choice between operating in the high-end Thilawa SEZ, or other industrial zones where no support whatsoever is available. The Amata project may fill that gap.
"We never compete with Thilawa but complement each other. I think some products are not suitable [for being manufactured at] Thilawa," Vikrom said, suggesting Amata's intention to make the new industrial zone more cost-effective for investment than Thilawa and offer an inexpensive option to manufacturers.
Amata is accelerating operations in GMS nations, and the project in Myanmar is in line with its strategy. "The strength of the GMS countries is that they are just next to China," Vikrom said.
Gross domestic product per capita in China has grown to $10,000 -- much higher than $2,000 to $3,000 in the GMS countries. China, meanwhile, needs new markets and production bases in the face of its trade war with the U.S.
"The solution is to learn from what the Japanese did 40 years ago. They went to Korea, Taiwan and China," Vikrom said. Due to considerations of geographical location, cost, and availability of natural resources, "the labor intensive factories have to move to GMS countries," Vikrom added.
Other projects to develop industrial sites around Yangon are also in the works. In Hlegu, north of the city, a 180-hectare Korea-Myanmar Industrial Complex -- invested in by Korea Land and Housing Corp. and other concerns -- is expected to be built, as pledged by South Korean President Moon Jae-in during his visit to Myanmar in September.
And in January, Chinese President Xi Jinping visited Myanmar and announced a "New Yangon City" project to build a new city across the Yangon River from the center of Yangon. As part of the project, which will be promoted under the leadership of state-run China Communications Construction, a 1,000-hectare industrial complex will be built.