Dawei revisited: Reaffirmation of the importance of the project in the era of reforms in Myanmar By Ikumo Isono and Satoru Kumagai Myanmar has entered a new era of all-round 1. Introduction reforms. Donors and foreign investors are mainly interested 2. Scenarios in Yangon, while there has been a delay in the Dawei deep sea project, the Dawei Special Economic Zone 3. Simulation Results project and the road connection to Thailand. The change 4. Policy in circumstances poses a question about whether the Implications Dawei project is still needed in the era of a reforming Myanmar. Our geographical simulation analysis clearly shows that the Dawei project has significant additional benefit for the whole Mekong region and points out the importance of international cooperation. 1. Introduction Physical and institutional connectivity enhancement in ASEAN and East Asia is a key driving force toward deepening economic integration in this region and keeping a good status of the region as a growth center for the world. The connectivity also helps the region to achieve the narrowing of development gaps. Copyright © 2013. Economic Research The Dawei project1 and ASEAN-India connectivity have been Institute for ASEAN and East Asia. All rights noted as a promising scheme for development. ERIA (2009) proposed reserved. the Mekong-India Economic Corridor (MIEC) and analyzed the possible The views expressed in this publication are those of impact of the corridor development (Figure 1). The Comprehensive Asia the author(s). Publication Development Plan (ERIA, 2010) compared the economic impacts of the does not imply endorsement by ERIA of North-South Economic Corridor, the East-West Economic Corridor and any of the views expressed within. the MIEC developments and concluded that the MIEC offers the largest You can download this potential contribution to regional economic growth. The missing links policy brief at the ERIA between Dawei and the Maesamee pass (Phu Nam Ron) was website: http://www.eria.org designated as a part of a prioritized project for ASEAN Connectivity Contact: (ASEAN 2010). The Comprehensive Asia Development Plan Phase II TEL: +62-21-5797-4460 FAX: +62-21-5797-4463 project (Kimura and Umezaki, 2011) highlighted several potential links in ERIA Policy Brief, No. 2013-01, May 2013 Figure 1. Mekong-India Economic Corridor and Dawei To Chennai Source: Authors modified from ERIA (2009) ASEAN-India Connectivity including now strongly expects that the the MIEC and the Trilateral Highways. development of the country will be All studies showed that Dawei and accelerated, especially in the Yangon Myanmar were the weakest links in the and Thilawa area. corridors, which present high Under these circumstances, potentiality. There has, however, been three research questions should be a long delay in the implementation of posed. First, in an era of reforms in proposed projects, including the Myanmar is the Dawei project still Dawei deep sea project, the Dawei needed, especially when many Special Economic Zone (SEZ) project donors/investors are focusing on the and road construction connecting to Yangon and Thilawa area? Second, if Thailand. so, how does the Dawei project The situation is now benefit Myanmar and the Mekong dramatically changing, as Myanmar region? And third, what are the best proceeds with all-round reforms. On 19 combination of the projects for ASEAN June 2012, President Thein Sein and Myanmar to aim for high declared that the government had economic growth and narrowing entered into the second phase of development gaps? reforms, which focused on economic We try to give answers to these and financial development. In questions by using the geographical January 2013 the Myanmar simulation analysis as in the previous government held a donor meeting. studies. The Geographical Simulation The international community has Model (IDE/ERIA-GSM), which was changed its attitude to Myanmar and ERIA Policy Brief, No. 2013-01, May 2013 jointly developed by Institute of there are no additional hard and soft Developing Economies, Japan infrastructure projects and run the External Trade Organization (IDE- simulation toward 2030. In the JETRO) and ERIA, is the only one alternative scenario, we assume methodology to identify economic additional projects and run the impacts of a specific infrastructure simulation up to 2030. We compare project on other countries and the economic situations, e.g. regional favorable combinations of various GDP (GRDP), between the baseline hard and soft infrastructure projects to scenario and the alternative scenario pursue both high economic growth and derive the economic impact of and narrower development gaps those infrastructure projects as a (Kumagai and Isono, 2011). Our model difference between the two scenarios. has sub-national economic data and Specifically, we set three different modes of transport in alternative scenarios as follows: logistics, i.e., highways, railways, sea shipment and air shipment. The geographical route of transactions Scenario 1 (Reforming Myanmar and between each pair of regions is Yangon Development) determined by firms' modal choice In 2015, we expand the capacity of which reflects the type of goods. The Thilawa port and develop the Yangon model also includes estimations of Special Economic Zone (SEZ) thus some other trade costs such as tariff increasing the productivity parameter rates, non-tariff barriers and of Yangon. We assume that Thilawa transshipment costs. We estimate and Chennai, India, Thilawa and region-specific productivity parameter Kolkata, India, and Thilawa and by industry. Therefore our simulation Colombo, Sri Lanka are connected by model is a comprehensive one for sea routes that are equivalent to other examining the impact of developing routes between internationally infrastructures and reducing broadly- important ports. Aside from the defined trade costs. Yangon development, we assume that Myanmar as a country reduces 2. Scenarios policy and cultural barriers by 3% per year. In this simulation analysis, we present a baseline scenario and several alternative scenarios. Every Scenario 2 (Two-Polar Development + simulation starts from 2005. In 2010, we Domestic Connectivity Enhancement assume that some infrastructure in Myanmar, excluding Dawei) projects have been completed and apply their impact to all scenarios. In In addition to the developments the baseline scenario, we assume that mentioned in Scenario 1, we have ERIA Policy Brief, No. 2013-01, May 2013 Mandalay development and Kanchanaburi to Dawei very smoothly, connectivity enhancement in taking only 15 minutes and free-of- Myanmar. We reduce the time and charge, and vice versa for the imports. monetary costs at the following national borders: Tachileik-Mae Sai, 3. Simulation Results Mongla-Daluo, Tamu-Moreh, Figure 2 illustrates the Kawthoung-Ranong, Myawaddy-Mae economic impacts of Scenarios 1, 2 Sot, and Muse-Ruili. Connectivity and Figure 3 shows the economic enhancement includes upgrading the impacts of Scenario 3 compared with roads in sequence as follows: the baseline where there are no 1) Yangon-Mandalay infrastructure developments. The 2) Muse-Mandalay-Kyaukphyu, economic effects are measured as 3) Myawaddy-Paan-Yangon, ‘impact density’ which is an index of gains/losses of GRDP in 2030 between 4) Yangon-Mandalay second link on the baseline scenario and an the western side of Bago Yoma, alternative scenario divided by the 5) Mandalay-Monywa-Tamu, area of the region. The larger the 6) Yangon-Pathein, impact, or the smaller the area of a 7) Mongla-Kyinetone-Tachileik and region, the larger the absolute value 8) Mawlamyine-Dawei-Myeik- of the impact density of the region Kawthoung. becomes. Red regions have positive economic impacts where the additional infrastructure projects are Scenario 3 (Scenario 2 + Dawei favorable for the regions and blue Development ) regions have negative economic In addition to the development impacts due to outflow of industries/ mentioned in Scenarios 1 and 2, we households or fierce price 2 develop the Dawei deep sea port competition. and the Dawei SEZ in 2020. Dawei and Scenario 1 depicts the Kanchanaburi are connected by a currently on-going plan as of 2013 that road. Dawei and Chennai, India, Myanmar proceeds with all-round Dawei and Kolkata, India, and Dawei reforms. The simulation result of and Colombo, Sri Lanka are Scenario 1 shows that reforming connected by sea routes that are Myanmar and completing the equivalent to other routes between Yangon/Thilawa development will internationally important ports. Special stimulate the economic activities of customs facilitation enables products Yangon and the Irrawaddy delta from Thailand, Laos, Cambodia and areas, and those areas will attract other countries to be exported to firms from other regions, especially India or the EU to go through from Northern Myanmar, to Yangon. ERIA Policy Brief, No. 2013-01, May 2013 The hard and soft infrastructure scenario 2 we propose the strategy by development in Scenario 1 ERIA (2012)3 that includes Mandalay significantly increases Myanmar’s net development in 2015, gradual GDP. The impacts on other countries connectivity enhancement in the are relatively small because of the country, and border facilitations at the small economic size of Myanmar. main border crossings with surrounding However, the Yangon countries, to achieve high economic development and Myanmar reforms growth and inclusive development in generally will induce the formation of Myanmar. a cluster in Yangon and