Tokyo – Japan Inc is charging into Myanmar. The rush began one night last October, when Myanmar’s new president rolled out a map after dinner to show an aging Japanese power broker a prize that could be Tokyo’s to develop - a swathe of land nearly as big as Macau.
President U Thein Sein, 67, a former general, had been president of Myanmar’s civilian government for just six months. He had won cautious praise for reconciling with democracy icon Daw Aung San Suu Kyi and opening Myanmar’s economy after five decades of army rule. Now he was seeking investors to develop Asia’s second-poorest country.
After a Chinese-style banquet at the presidential residence in the capital of Nay Pyi Taw, U Thein Sein turned to Hideo Watanabe, 78, a Japanese politician with an enduring interest in Myanmar. The new president offered a deal: Japan could develop a special economic zone at Thilawa, a spot near both Myanmar’s largest city and a port on the Indian Ocean – if it came up with the money.
“I told him I would figure something out,” recalled Watanabe, a former cabinet minister and top aide to ex-Japanese Prime Minister Yasuhiro Nakasone.
Watanabe was as good as his word. A fast-track deal negotiated in less than a year has paved the way for Japan to provide at least US$18 billion in aid, investment and debt forgiveness from government and private sources.
Gold rush embrace
In addition to this deal, Reuters has learned that Japan will provide up to $3.2 billion in new lending to build another special economic zone and deepsea port in Dawei, in southern Myanmar, which would be developed into Southeast Asia’s largest industrial complex.
The deals have made Japan a major player overnight in the opening of Myanmar. The part of the Thilawa package that includes debt forgiveness and refinancing adds up to nearly $5 billion, dwarfing the $76 million in aid from the United States in 2011 and 2012 and a two-year package of $200 million the European Union has pledged.
In reconstructing how Japanese government and business leaders moved from cautious re-engagement with Myanmar to a gold-rush embrace over the past year, Reuters spoke to more than 50 officials, executives and politicians involved in the effort on both sides. They described how a small group of well-connected Japanese pushed Tokyo’s bureaucracy and aid agencies to fast-track key decisions, even while Myanmar’s laws on investments were still being debated in its nascent parliament.
At stake is influence in Asia’s last frontier market. The Japanese pounced as Myanmar’s leaders were looking for allies to blunt China’s enormous influence in Myanmar. Japan’s push back into Myanmar has vaulted it ahead of the United States and the European Union, which have been more cautious in unwinding trade and investment restrictions put in place in the 1990s. One likely result is a big leg up for Japanese trading houses, banks, contractors and engineering firms.
“We are lucky because the US was kind enough to introduce economic sanctions – that’s why Western financial firms have so far no presence in Myanmar,” said Shigeto Inami, who manages Myanmar operations for Daiwa Institute of Research. The think tank runs Myanmar’s tiny stock exchange and has plans to transform it into a thriving bourse by 2015.
US and European diplomats said they don’t necessarily see the Japanese win as disadvantageous to Western multinationals. Washington has been urging allies, including Tokyo, to enter Myanmar to buttress the economy and thereby the reformist wing of the military-backed government, a senior State Department official told Reuters.
A handful of US giants – including GE and Coca-Cola – already have returned. In Thilawa, Western power firms such as GE and Siemens and construction giants such as Bechtel and Balfour Beatty could win subcontracts from the Japanese, business analysts say.
“Many of our competitors have been in that market for many years, so we’re already late to the game,” said John Goyer, senior director of Southeast Asia for the US Chamber of Commerce. But “there’s clear interest and desire on Myanmar’s part to have US companies there”.