Competition for special economic zone investment is heating up in Southeast Asia as Asean Economic Community integration looms
Staring down the barrel of enhanced Asean Economic Community (AEC) integration and reduced barriers to competition, the battle for Foreign Direct Investment (FDI) is heating up in Southeast Asia.
Bordering the region’s industrial powerhouse of Thailand, Cambodia and Myanmar have been working to boost the attractiveness of their respective Special Economic Zones to would-be foreign investors.
Myanmar passed its Special Economic Zone law in 2011, creating special tax and non-tax incentives for industrial investors. Of three Special Economic Zones identified for development, the most advanced is Thilawa. Located just 34.2 km from the country’s main international shipping port, the government hopes to attract more than 100 factories into the zone and create more than 50,000 new jobs in the next three years.
In Cambodia, the country’s Minister of Commerce Sun Chantol, a former General Electric executive, has provided a boost to the country’s industrialization effort. The minister’s advisory board sub-committee on FDI, chaired by Tractus’ Managing Director John Evans, has displayed a practical approach to industrial investment attraction strategy focused on advantages in cost-competitive labor, creating a vertically integrated garment sector, light manufacturing and agro-business investment. Cambodia’s own Special Economic Zone legislation also provides for competitive investment attraction incentives in addition to being the most open FDI regime in Asean, according to the World Bank.
A true apples-to-apples comparison of Special Economic Zone incentives is difficult given varying operating conditions and incentive structures. A basic bench-marking exercise of Corporate Income Tax (CIT) exemptions puts Cambodia at the head of the pack with the biggest CIT exemption incentives of up to nine years for qualifying investments. Myanmar meanwhile, despite have some of the least attractive operating conditions, trails the pack offering just seven and a half years (five years CIT exemption plus five years at 50% exemption) compared to Thailand’s eight year CIT exemption for qualifying investments.
Additional tax and non-tax incentives are much more difficult to compare on an apples-to-apples basis and varying incentive structures can have dramatically varying impacts on differently oriented businesses. While exemptions on customs duties, tax deductions and other fiscal incentives are an important and quantitatively measurable aspect of a Special Economic Zone location decision, investors must additionally give considerable thought to qualitative aspects such as rights to the repatriation of profits, guarantees against nationalization, dispute resolution mechanisms and equitable treatment of foreign and local investments under law.
Tractus has a long and rich history of industrial investment advisory. Advising on more than US$5 billion of FDI into Asia across more than 700 projects since 1995, Tractus is an expert resource to companies analyzing industrial site selection decisions in Asia. Tractus’ on-the-ground approach to data-backed research and analysis has helped form recommendations that have conferred long term cost and operating condition advantages to hundreds of clients across Asia.