Responsible Investment in Myanmar: Lessons from experiences of SEZ developments | Environmental Impact Assessment

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As Myanmar navigates its rapid economic expansion triggered by the end of military rule in 2010, the development of special economic zones (SEZs) is a key element of the country’s industrialization plan. SEZs aim to increase foreign investment and economic growth using special incentives, services and regulations. Their success is usually viewed in terms of economic impacts, overlooking wider social and environmental impacts. This report draws on evidence from the South-East Asia region to explore the impacts of SEZs, with case studies from Thailand, Indonesia, Cambodia and Vietnam. It shows that without transparency and accountable governance, or a clear strategy for local linkages, SEZs are more likely to result in harmful environmental and social impacts and fail to deliver expected benefits. As Myanmar proceeds with several SEZ developments, fundamentally transforming livelihoods, it has an opportunity to learn from experiences in the region, to mitigate the negative impacts and to take action to improve prospects for local communities.
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  OXFAM DISCUSSION PAPER JANUARY 2017 www.oxfam.org  Fishermen in Kyauk Phyu. Photo: Kaung Htet RESPONSIBLE INVESTMENT IN MYANMAR Lessons from experiences of SEZ developments Special Economic Zones (SEZs) aim to increase foreign investment and economic growth using special incentives, services and regulations. Their success is usually viewed in terms of economic impacts, overlooking wider social and environmental impacts. But experience in South-East Asia has shown that without transparency and accountable governance, or a clear strategy for local linkages, SEZs are more likely to result in harmful environmental and social impacts and fail to deliver expected benefits. The local population are the losers in such investments. As Myanmar proceeds with several SEZ developments, fundamentally transforming livelihoods, it has an opportunity to learn from experiences in the region and to take action to improve prospects for local communities and mitigate the negative impacts of SEZs.    2 SUMMARY Special Economic Zones (SEZs) are clearly demarcated geographic areas where different legal and regulatory regimes relating to business and trading activities apply. Originally established as a way of circumventing trade restrictions, SEZs are usually intended to create an environment that will boost manufacturing, stimulate trade and foreign direct investment (FDI), and act as a testing ground for new governance reforms and incentives. SEZs vary in size as well as in their objectives and performance. Some have become huge centres of growth, while others have either failed to get off the ground, failed to increase exports or benefits beyond their enclaves, or have not been able to sustain success over time. Some have had serious negative impacts on the surrounding environment and on local communities, particularly women and girls.  As Myanmar continues to navigate its rapid economic expansion triggered by the end of military rule in 2010, the development of SEZs forms a key element of the country’s  industrialization plan. Myanmar now has the opportunity to learn from its neighbours to pursue the success factors and avoid the pitfalls that lead to failed SEZs. Most research focuses exclusively or largely on the economic impacts of SEZs as a measure of their success, with less attention devoted to the wider social and environmental impacts and to the political economy of such zones. This report draws on evidence from the South-East Asia region to explore the wider social and environmental impacts of SEZs, with case studies from Thailand, Indonesia, Cambodia and Vietnam. Oxfam has been providing humanitarian assistance and working with local communities to improve livelihoods and reduce poverty in Kyauk Phyu township  –  one of the sites of Myanmar’s three SEZs . Based on experience of SEZ developments in the region, this report identifies issues and lessons with relevance to the Kyauk Phyu context. Key factors for a successful SEZ include (but are not limited to): a clear vision and objectives; the location, depth and skill levels of local labour markets; linkages to domestic markets; and strong coordination and consistent support for policies across central and local government. Transparent and accountable planning, decision making and implementation are also crucial. The context in Kyauk Phyu and available information about the SEZ development indicate that there are many risks to be mitigated and challenges to overcome if it is to succeed, while avoiding serious environmental damage and bringing greater prosperity to local communities. If the Government of Myanmar decides to pursue development of an SEZ in Kyauk Phyu, Oxfam proposes the following recommendations to support responsible investment, maximize positive opportunities and minimize any potential negative impacts. The Government of Myanmar should: ã  Undertake a Strategic Environmental Assessment (SEA) to situate the immediate SEZ development in the wider economic, social and environmental context  –  which is essential for proper planning and coordination. ã  Align SEZ plans with wider national sustainable economic development plans, and include approaches to support job creation and specific measures to improve education and skills opportunities for women to increase their economic empowerment. This should be an inclusive process that involves consultation with a wide range of stakeholders, including the public and, most importantly, the affected communities.   3 ã  Invest in new land transport linkages to open up access to national and regional markets. ã  Invest in local economic infrastructure and provide support to local farmers, workers and enterprises so they can benefit from opportunities to engage with new local, regional and national markets. ã  Enforce environmental laws to ensure that full, rigorous and consultative Environmental Impact Assessments (EIAs) are conducted for SEZs in accordance with the 2015 EIA Procedure. These must cover not only the construction phase but also the operation of an SEZ and baseline requirements of the industries expected within it. ã  Provide the necessary support and regulatory clarity to ensure that the investment is conducted to the highest standards and in coordination with regional and national economic development plans. ã  In coordination with relevant investors and companies, implement best practice international standards and procedures for land acquisition and resettlement processes. Under Myanmar law, this must conform to the World Bank Policy on Involuntary Resettlement. This also means that no land use rights should be transferred from pre-existing land users without their Free, Prior and Informed Consent (FPIC).  1   ã  Given the importance of revenue-raising through strategic investments such as SEZs, the government should draw on regional expertise and establish  –  through regional forums of the Association of Southeast Asian Nations (ASEAN)  –  guidelines and criteria for the circumstances under which tax incentives and exceptions are acceptable. Investors and project developers should: ã  Operate transparently by establishing clear mechanisms to ensure that the local community is informed and consulted about the SEZ and its impacts in line with international standards, including the United Nations Guiding Principles on Business and Human Rights (UNGPs). ã  Establish operational complaints and grievance mechanisms in consultation with local communities and in line with the United Nations Guiding Principles on Business and Human Rights. ã   Take specific steps to ensure that women’s voices are heard, their concerns are addressed and their knowledge informs decisions. ã  Work with government, civil society and development partners to ensure that investment and development projects support the communities most in need and can provide the skills training most likely to enable those communities to access jobs or other benefits. Transparency underpins all the recommendations proposed here. More can be found in the Recommendations section of the full report.  4 1 AN INTRODUCTION TO SPECIAL ECONOMIC ZONES 1.1. DEFINITION AND TYPES The term Special Economic Zone (SEZ) is used to describe clearly delineated geographic areas within which there is a different legal and regulatory regime relating to business and trading activities. Beyond this basic definition, there is extremely wide variation in the location, size, composition and objectives of SEZs. The earliest free trade areas appeared in the late 1930s, providing benefits such as tax or tariff advantages. It was not until the world noted the success of the Kaohsiung Export Processing Zone (EPZ), established in 1966 in Taiwan, that there was widespread proliferation of SEZs. By 1978, 22 countries had established SEZs; by 2015, there were 4,300 SEZs in more than 130 countries, employing 68 million workers. 2  SEZs began as a way to circumvent trade restrictions and earn foreign exchange revenues; they were a means of boosting manufacturing and gaining access to new global markets, and acted as a testing ground for new governance reforms and incentives. This can be viewed as a three-stage progression: ã  First stage: SEZs can bring employment and foreign exchange revenues (this might include low-skilled employment as in the garments or electronics industry, for example). ã  Second stage: SEZs can create greater linkages with the domestic economy in supply chains and markets, such as with own-branded merchandise. ã  Third stage: SEZs can facilitate reforms in areas such as labour markets and the service sector, which might assist nationwide development by improving productivity, raising skill levels and stimulating innovation. 3  SEZs are often governed by dedicated authorities that have some autonomy over the design and application of regulations, administration and incentives, and frequently provide a single point of access to central government functions  –   known as a ‘ one-stop service centre ’ . 4  Some analysts argue that this gives them a paradoxical character: they have both more and less government control than the rest of the country, and are frequently in breach of World Trade Organization (WTO) agreements while also existing to promote international trade. Political economy analysis suggests that there are practical reasons for establishing SEZs in small areas rather than implementing similar reforms nationally (e.g. testing reforms at a manageable scale, and encouraging clustering of businesses) as well as political reasons for doing so (certain industries may be protected nationally due to their public purpose and/or their value to local political elites). 5  Functional differences between SEZs are clear in some cases. Common examples include: ã  Free trade zones  –  with facilities for storage, shipment and distribution of goods. ã  Export processing zones (EPZ)  –  focused on manufacturing and/or industrial processing and logistical support for export industries. ã  Free ports  –  may combine both elements in large and diversified zones.
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