Posted in Political Institutions on Jun 19, 2019
Hluttaw is now considering an Industrial Zone Bill the aims to attract domestic and foreign investment, create competitive industries, encourage an ‘industrial zone culture’, and to reduce the social and environmental impact caused by industry.
Photo by Peter Hershey on Unsplash
Many countries have laws that allow the creation of special economic areas. The aim is to attract companies to establish their operations in a particular area, by reducing their costs of doing business through tax reliefs, provision of good quality infrastructure, and easy access to raw materials and labour. Supporters of such laws claim that clustering of businesses reduces their transaction costs, and leads to greater levels of economic growth. This is known in economics as ‘agglomeration‘. Supporters also claim that clear demarcation of an economic zone means it is easier to set and monitor social and environmental standards, such as workers rights, minimum wages or pollution limits.
Critics, on the other hand, point to mixed evidence worldwide on the effectiveness of these special zones. They also point to evidence that economic zone laws can actually worsen workers conditions and lead to environmental degradation. This is because the idea of a pro-business, protected area can lead some firms to perceive the zone as a free market, law-free area where ‘anything goes’. And certainly when it comes to human rights, the experience in Myanmar with SEZs suggests authorities may be over-enthusiastic in grabbing people’s family lands and not providing adequate or fair compensation. Lastly, there is evidence from many zones that external investment attracted to relocate in industrial zones does not actually benefit the domestic economy all that much, unless specific requirements are placed on firms to use local raw materials, and/or to sell their products in local markets (known as backward and forward linkages).
How to make the current Industrial Zone Bill the parliament is considering better? Here are a few recommendations:-
- The government may wish consider whether industrial zones are the priority issue right now for economic development. There are a more pressing issues cited by businesses as barriers to investment, which need to be addressed before IZs are likely to succeed. Evidence from elsewhere suggests that businesses will invest where there is:
- A coherent economic strategy (the 12-point plan is quite general and does not prioritise)
- Sufficient budget earmarked for upfront investment in infrastructure
- Reliable electricity and water supplies
- Mechanisms to create opportunities for local businesses
- Reduction of bureaucracy
- Eradication of corruption
- Political stability
- Reliable legal system and respect for international laws
Also, it could be argued that without putting a limit on the number of zones the law risks recreating the problem zones being scattered and not encouraging clustering of similar firms. As well as being economically undesirable, if there are many zones the public cost of the infrastructure will be higher. To save public money and to stimulate clustering, government would be advised to limit the number of zones and allocate a specific pot of funding to each one.
When drawing up this new industrial zone law, existing and new industrial zones should be taken into account separately, but policies brought into alignment where possible. For example, there are existing industrial zones (especially in Yangon Region), that used to be on the outskirts of the city which have now been subsumed by rapid urbanisation. Common international approaches to this problem include moving, closing and controlling by law these sites. Consideration also needs to be given to sites that have been designated as zones but where development is yet to take place.
New industrial zones should be part of an overarching economic strategy, with industries encouraged to cluster together that use similar technologies, access similar markets, or have similar skills requirements such as a need for factory labourers and/or a need for highly-skilled workers.
To support industrial development a provision should be included to support local and foreign market research, and promotion teams, for respective zones.
Before approving the industrial zone bill, it is important to harmonize it with the existing laws like Factories Act 1951, Private Industrial Enterprise Law drawn by the Ministry of Industry in 1990 and Small and Medium Enterprises Development Law drawn in 2015.
The law should contain ambitious provisions for workers rights and environmental protection. Increasingly transnational businesses customers are demanding high ethical standards so this is important business sense.