VZCZCXRO6953
RR RUEHBZ RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0817/01 2470246
ZNR UUUUU ZZH
R 040246Z SEP 07
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 6433
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1503
RUEHBY/AMEMBASSY CANBERRA 0466
RUEHKA/AMEMBASSY DHAKA 4591
RUEHLO/AMEMBASSY LONDON 1987
RUEHNE/AMEMBASSY NEW DELHI 4001
RUEHUL/AMEMBASSY SEOUL 7556
RUEHTC/AMEMBASSY THE HAGUE 0649
RUEHKO/AMEMBASSY TOKYO 5112
RUEHCN/AMCONSUL CHENGDU 1177
RUEHCHI/AMCONSUL CHIANG MAI 1060
RUEHCI/AMCONSUL KOLKATA 0040
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3254
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 0909
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 04 RANGOON 000817 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EB/TRA 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: ECON ETRD EINV PREL BM
SUBJECT: INVESTORS TRAPPED IN DECREPIT INDUSTRIAL ZONES 
 
 
RANGOON 00000817  001.2 OF 004 
 
¶1. (SBU) Summary.  The GOB established industrial zones in 2002 to 
promote the development of Burma's industrial sector.  Currently, 
more than 9,500 factories operate in 18 industrial zones, employing 
almost 180,000 people.  Many factory owners complain that business 
conditions in the industrial zones have worsened, rather than 
improved.  All 18 industrial zones face serious challenges, 
including lack electricity and basic infrastructure, which make it 
difficult for companies to meet production demands.  The only 
benefit investors receive is a 30-year lease on land, which, if 
necessary, can be sold at high prices.  Although investors are 
unhappy with the work conditions, they do not complain to the 
government for fear of retribution.  Instead, they find themselves 
trapped, unable to obtain licenses for factories outside of 
industrial areas and unwilling to abandon their investment.  End 
Summary. 
 
If You Build It, They Will Come 
------------------------------- 
 
¶2. (SBU) In 2002, the GOB established industrial zones in Rangoon 
and Mandalay, and declared that factories operating in nine sectors 
-- textile and garments, engineering work, metal and mineral 
products, foodstuff, chemicals, wood-based products, ceramic items, 
weaving, and packaging -- should relocate operations to these areas. 
 It later opened industrial zones in other states and divisions 
throughout Burma.  The reasons behind the industrial zones were 
two-fold:  The GOB wanted to promote the development of Burma's 
industrial sector while consolidating factories in areas apart from 
residential zones.  There may be another reason, however.  Several 
factory owners revealed that by establishing industrial zones in the 
outskirts of large cities, the GOB could better prevent the outbreak 
of mass labor strikes mobilizing other people. 
 
¶3. (SBU) According to the Ministry of Industry (1), there are 
currently 18 industrial zones throughout Burma, with more than 9,500 
factories located in these zones.  The Burmese Department of Labor 
reports that, as of August 2007, these factories employ a total 
179,966 workers.  Under Burmese labor laws, these factory employees 
are considered to be skilled workers (despite their actual skill 
levels), and thus they must work 48 hour/6 day work weeks.  Workers 
in these factories receive an average salary of 30,000 kyat ($23) 
per month. 
 
--------------------------------------------- --------- 
              Industrial Zones in Burma 
                       2007 
--------------------------------------------- --------- 
Name                    Location             Number of 
                                             Factories 
--------------------------------------------- --------- 
Mandalay               Mandalay Division         1,109 
Myingyan               Mandalay Division           336 
Meikhtila              Mandalay Division           394 
No.1 South Dagon       Eastern Rangoon             133 
No.2 South Dagon       Eastern Rangoon             529 
No.3 South Dagon       Eastern Rangoon             139 
Dagon Myothit Seikkan  Eastern Rangoon              62 
Dagon Myothit (East)   Eastern Rangoon               9 
North Okkalapa         Eastern Rangoon              66 
South Okkalapa         Eastern Rangoon             118 
Thekata                Eastern Rangoon              55 
Yangon Western         Western Rangoon           1,003 
Yangon Southern        Southern Rangoon            896 
Hlaing Thayar          Northern Rangoon            351 
Shwepyi Thar           Northern Rangoon            170 
Mingalardon            Northern Rangoon            131 
Shwe Pauk Kan          Northern Rangoon            128 
 
RANGOON 00000817  002.2 OF 004 
 
¶1. (SBU) Summary.  The GOB established industrial zones in 2002 to 
promote the development of Burma's industrial sector.  Currently, 
more than 9,500 factories operate in 18 industrial zones, employing 
almost 180,000 people.  Many factory owners complain that business 
conditions in the industrial zones have worsened, rather than 
improved.  All 18 industrial zones face serious challenges, 
including lack electricity and basic infrastructure, which make it 
difficult for companies to meet production demands.  The only 
benefit investors receive is a 30-year lease on land, which, if 
necessary, can be sold at high prices.  Although investors are 
unhappy with the work conditions, they do not complain to the 
government for fear of retribution.  Instead, they find themselves 
trapped, unable to obtain licenses for factories outside of 
industrial areas and unwilling to abandon their investment.  End 
Summary. 
 
Myaungmya              Irrawaddy Division          410 
Hinthata               Irrawaddy Division          489 
Pathein                Irrawaddy Division          332 
Monywar                Mandalay Division         1,006 
Kalay                  Sagaing Division            284 
Pyay                   Pegu Division               181 
Yanangyaung            Magway Division              85 
Pakokku                Magway Division             251 
Mawlamyine             Mon State                   177 
Taunggyi               Shan State                  720 
Myeik                  Thaninthayi Division         20 
--------------------------------------------- --------- 
Total Number of Factories                        9,584 
--------------------------------------------- --------- 
 
Why Make the Move? 
------------------ 
 
¶4.  (SBU) Although not all factories working in the nine sectors 
relocated operations to the industrial zones, many factories made 
the move.  A garment factory manager informed us that many companies 
thought the move would bring long-term benefits.  Some companies 
sought to expand operations.  By moving to a newly built industrial 
zone, they could acquire large plots of land where they could build 
large factories.  Others wanted to acquire land at cheap rates. 
Investors in the industrial zones obtained a 30-year lease for an 
empty plot of land; they were responsible for constructing buildings 
and infrastructure.  Investors erected factories, installed lights 
and generators, and helped pave the roads in the area.  The 
government required that the companies pay a land tax of between 
2,000-3,000 kyat/acre annually (between $1.50-$2.30). 
 
¶5.  (SBU) Factory owners acknowledged that the 30-year land leases 
were the real reason they invested in the industrial zones.  In 
2002, they believed that the land was undervalued, and expected that 
prices would rise in the following years.  They were right: when the 
zones opened in 2002, land in these areas was valued at 4.5 million 
kyat/acre ($3,450).  As of August 2007, the industrial zone lands 
were valued at 70 million/acre ($53,800), an increase of 1455 
percent over a five year period.  While the companies do not own the 
land, they are able to sell their land leases for high values.  Many 
companies with failing businesses have taken advantage of rising 
land prices, selling their leases for between 30-50 million kyat 
(between $23,000-38,500). 
 
¶6.  (SBU) More often than not, these prices do not cover the cost of 
the company's investment.  U Zaw Min Oo, Managing Director of 
Crocodile Trading, noted his luck when he sold his 2.71 acre garment 
factory in Hlaing Thayar in 2003.  Crocodile Trading invested more 
than $225,000 in this factory, only to be forced to sell during the 
2003 banking crisis.  He received 300 million kyat ($231,000), 
 
RANGOON 00000817  003.2 OF 004 
 
¶1. (SBU) Summary.  The GOB established industrial zones in 2002 to 
promote the development of Burma's industrial sector.  Currently, 
more than 9,500 factories operate in 18 industrial zones, employing 
almost 180,000 people.  Many factory owners complain that business 
conditions in the industrial zones have worsened, rather than 
improved.  All 18 industrial zones face serious challenges, 
including lack electricity and basic infrastructure, which make it 
difficult for companies to meet production demands.  The only 
benefit investors receive is a 30-year lease on land, which, if 
necessary, can be sold at high prices.  Although investors are 
unhappy with the work conditions, they do not complain to the 
government for fear of retribution.  Instead, they find themselves 
trapped, unable to obtain licenses for factories outside of 
industrial areas and unwilling to abandon their investment.  End 
Summary. 
 
breaking even.  He lamented, however, that if he could have kept his 
factory, the factory and the land would be worth approximately 1 
billion kyat ($769,000) in the current market. 
 
But the Power is Off... 
----------------------- 
 
¶7.  (SBU) Industrial zone investors informed us that factories 
located in these zones face real challenges.  The most egregious 
problem, they noted, is unreliable electricity flows.  Although 
factories paid for the installation of electricity lines, neither 
the Myanmar Investment Development Committee (MIDC), which oversees 
the industrial zones, nor the Myanmar Electric Power Enterprise 
(MEPE), which controls electricity supply, provides sufficient 
electricity to the factories to maintain normal operations.  U Zaw 
Min Oo divulged that factories are forced to run on diesel 
generators, which costs between 10 million to 15 million kyat 
(between $7,700 and $11,500) a month.  This additional cost cuts 
heavily into profits.  With the doubling of fuel prices in 
mid-August (reftel A), factory owners expect that not only will 
their electricity costs double, but workers may strike in an effort 
to elicit higher wages. 
 
¶8. (SBU) When asked why companies stay in these zones, factory 
owners lamented that the GOB will not approve licenses to build 
factories outside of designated zones.  Residential areas are for 
living, not small or medium enterprises, the GOB claims.  Thus, 
companies are tied to their investment in the industrial parks. 
Factory owners also noted that they could not complain to the GOB 
about the poor work conditions for fear of retribution.  Instead, 
they only raise the issue when Burmese Government dignitaries visit 
the zones for photo opportunities. 
 
Ways To Maximize Profits 
------------------------ 
 
¶9.  (SBU) Because the factories must deal with these infrastructure 
problems on their own, profits have greatly diminished.  Some 
companies, particularly those which are underwritten by foreign 
investors, attempt to circumvent the strict and archaic Burmese 
investment laws in order to make a profit.  U Kyaw Win, Managing 
Director of Tri-Diamond Trading Company, told us that of the 185 
garment factories in Rangoon, approximately 20 factories are owned 
by companies from Japan and Korea.  Under Burmese law, these 
companies, which are 100 percent foreign-owned, must pay taxes and 
all bills, including electricity and telephone, in foreign currency, 
converted at the official rate of 6 kyat to $1.  These companies 
face significant profit loss, as the archaic exchange rate (the 
market rate is now over 1300 kyat to the $1) acts as a tax on 
foreign companies.  In order to circumvent this law, approximately 
80 garment factories, financed by foreign companies from Taiwan and 
 
RANGOON 00000817  004.2 OF 004 
 
¶1. (SBU) Summary.  The GOB established industrial zones in 2002 to 
promote the development of Burma's industrial sector.  Currently, 
more than 9,500 factories operate in 18 industrial zones, employing 
almost 180,000 people.  Many factory owners complain that business 
conditions in the industrial zones have worsened, rather than 
improved.  All 18 industrial zones face serious challenges, 
including lack electricity and basic infrastructure, which make it 
difficult for companies to meet production demands.  The only 
benefit investors receive is a 30-year lease on land, which, if 
necessary, can be sold at high prices.  Although investors are 
unhappy with the work conditions, they do not complain to the 
government for fear of retribution.  Instead, they find themselves 
trapped, unable to obtain licenses for factories outside of 
industrial areas and unwilling to abandon their investment.  End 
Summary. 
 
Korea, obtain licenses under the names of Burmese citizens.  Because 
these companies are de-facto Burmese companies, they pay taxes and 
bills in kyat (at the market rate).  A garment factory owner 
explained that while government officials were aware of this 
practice, they condoned it because they did not want to scare off 
foreign investors. 
 
¶10.  (SBU) Another way these companies maximize profits is by not 
paying taxes.  Although the GOB is aware that companies evade taxes, 
officials do not always enforce the law in exchange for a well-timed 
bribe.  If a company does something to draw attention to itself, 
such as complain about the lack of electricity, the GOB will 
scrutinize tax payments.  Thus, companies keep a low profile, and 
avoid talking to the press or foreigners about their problems. 
 
Comment 
------- 
 
¶11.  (SBU) The Burmese Government plans on establishing new 
industrial zones, showing how out of touch officials are with the 
reality of the situation.  Ignoring the lack of basic infrastructure 
and electrical power during working hours, high level officials tout 
the "success" of the industrial zones to attract new foreign 
investment.  The government needs to open its eyes to reality, 
improve the investment climate, and eliminate the archaic investment 
laws that penalize foreign investors before it will be able to 
attract any investment. 
 
VILLAROSA