This paper, presented at an academic conference in Hong Kong in 2015, should have been posted on my website at the very beginning. Somehow it was overlooked. It is a milestone in my economic policy experience because it was the first time I wrote about "land value capture". Each year since then, I have found more occasions to promote the concept of land value capture, notably in the case of Indonesia's new capital project and now in the case of reconstruction in post-war Ukraine. The radical part of the paper is where I sketch out how to fairly compensate the owners of land that is taken away from them for the construction of a major project, industrial or infrastructure or resource extraction. The most interesting part of the paper may be the case I make for developing the Dawei area as a new city instead of simply an Export Processing Zone.
Fair Compensation for Land Acquisition for Major Projects
(with an eye on the Dawei Special Economic Zone)
by Lex Rieffel
Nonresident Senior Fellow
The Brookings Institution
Washington, DC
Email: lrieffel@brookings.edu
presented at the conference on:
Burma/Myanmar: Making the Transition to the Next Stage
3 December 2015
Lingnan University, Hong Kong
Abstract
Fair compensation for land acquisition by governments or with government approval has been a contentious issue in many countries. Recent protests in China and India, for example, have created major political challenges that have forced policy changes and new legislation. Myanmar has experienced numerous “land grabbing” protests since it began its transition to democratic rule in 2011. Such protests may escalate under Myanmar’s next government and become an obstacle to major infrastructure, industrial and urbanization projects that are vital to the country’s economic progress. The paper has four parts. Part One discusses the impact of development on land value and why it is so difficult to provide fair compensation to land owners and residents. Part Two examines the land acquisition policies of Myanmar, China, India, and several other countries. Part Three sketches out an innovative approach to compensation for land acquisition that includes an equity (or equivalent) interest in the success of major projects among landowners and residents in the project area. Part Four examines how this approach could be applied in the case of the Dawei deep seaport and industrial zone project that is designed to serve as one of the country’s growth centers, anchor two of the planned Southeast Asia transportation “corridors”, and provide a new trade link for Southeast Asia to South Asia, the Middle East, Africa, and Europe.
Introduction
Think of the Dawei Special Economic Zone as a blank slate. Recall that the Thein Sein government scrapped the plan that was adopted by the preceding SPDC government. An NLD-led government in 2016 could just as well scrap the Thein Sein government’s plan.
There are many good reasons to start from scratch in developing the Dawei SEZ. One of them is to make the build-out of the Dawei SEZ a gold standard for the establishment of new cities—a model not just for Myanmar but for a world that is urbanizing at such a rate that the establishment of new cities is already beginning to become a trend.
In Myanmar itself, the urban population might easily climb from 15 million today to 26 million in 2040. Many of these additional urban residents will be accommodated by expanding existing cities and towns, but establishing several new cities could be a lower cost, more sustainable, and more growth-enhancing option. The Dawei SEZ could be the nucleus of one of these new cities.
Several concepts discussed in this paper could help to ensure that the development of the Dawei SEZ is a win-win experience for the people of Myanmar in general. These include:
Reform zones. The economist Paul Romer makes a distinction between “reform zones” and “concession zones”. The former are places where new rules produce a better living and working environment for all households and businesses. The latter are places where the rules/policies create a small group of winners and a large group of losers. He points to the city of Shezhen in China as the outstanding example of a reform zone.
Importing government services. Romer also points out that many developing countries are eager to import goods and capital, but few are attracted to importing government services. There seem to be quite a few countries in the world—like Myanmar—that could benefit from importing government services, especially in the form of good governance and even if confined to a relatively small area like a Special Economic Zone.
Land Value Capture. Economists and urban scholars have studied the way land values increase around new infrastructure or dynamic cities even though the owners of this land have done nothing to make it more valuable. They have observed how politically powerful people are often able to acquire this land at an early stage and capture its increased value. To capture this value for the public in general instead, a number of approaches have been devised, including land banks, land readjustment, betterment contributions, and community benefit agreements.
Equity for Displaced Holders of Land-Use Rights. Upfront cash payments are the simplest way of compensating people being displaced by major projects, but they are the usually too small to be considered fair. Giving displaced people a long-term equity interest in the project has some compelling advantages.
Part One: The Problem of Land Acquisition for Major Development Projects
Land. Land is one of the most important assets in the world’s low-income countries. It is perhaps the most important of all.
Land Acquisition for Major Projects. Land acquisition for major projects is one of the most contentious social issues in the world, in high-income and middle-income countries as well as low-income countries. In general, opponents of a specific acquisition do not like the amount of compensation or the lack of recourse (being compelled to yield their claim), or both together.
Categories of Major Projects. Major projects can be divided into a number of categories. The largest number of projects involving land acquisition can be grouped into the categories of transportation infrastructure, energy infrastructure, urbanization, natural resource exploitation (e.g., mining, plantations, agricultural estates), and economic zones.
Problems with Land Acquisition for Major Projects. In low-income countries like Myanmar, two huge problems are inherent in acquiring land for major projects: unreliable land records and biased judicial systems. As a result, rich and powerful people are able to have land records altered in their favor and to outbid challengers for favorable judicial decisions. It follows that many families with an undocumented customary or hereditary right to use land become landless as these countries experience economic growth and powerful people become wealthier.
Public vs. Private Land Ownership. In some countries (e.g., China, Myanmar), the government owns all of the land and people can only acquire various rights to use it. In other countries (e.g., the United States, India), private ownership of land is an inalienable right of citizenship.1 Land acquisition tends to be easier in countries where the government owns the land. Land acquisition tends to be harder in countries with democratic political systems and robust judicial systems. Because of the large number of people or the large amount of land involved, land acquisition for major projects can easily become a hot political issue.2
Public vs. Private Land Acquisition. Land acquisition can be carried by the public sector, the private sector, or by the private sector through a concession granted by the public sector. In terms of the overall social benefit or cost, none of these three approaches is inherently better than the other. For each, the key issue is the amount and form of compensation provided to the people whose land is being acquired.3
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1 Terms used to describe largely unlimited private ownership of land include “freehold rights” and “indefinite property rights”.
2 It is possible that the practical difference is negligible between inalienable private ownership of land where the government easily and often acquires land through its power of “eminent domain” and state ownership of all land where the government provides effective safeguards against land confiscation for socially questionable purposes.
3 The literature related to six distinct justifications for land acquisition are neatly summarized in Ding (2007), pp.2-3.
Compensation. Typically, the affected land owners/users receive cash compensation based on an assessment of the market value of their land. In many cases, the affected population in a process of resettlement is provided with a new parcel of land (including a new house) outside the project area (a hydroelectric dam, for example). In fewer cases, the affected population is offered alternative employment or training to make them more employable.4
Land Value Capture.5 It is well understood that the value of land in or adjacent to major infrastructure projects increases exponentially following project completion. A classic example is the construction of a major highway where land around interchanges is bid up for commercial development (homes, offices, malls). The concept of “land value capture” is at the heart of this paper. In particular, the paper highlights the option of giving the affected population a long-term equity interest in the project as well as cash compensation.
Most of the literature on land value capture focuses on high-cost transportation projects such subway systems. The motivation here is to generate funds to construct the project because the cost is too great to be financed with the current revenue of the local government and there is insufficient political support for generating funds from new taxes. Instead funding is obtained from the increase in land value around the new subway stations.6
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4 “In western countries where property rights and markets are well developed, compensation for land acquisition has two components: one is direct compensation and the other is indirect compensation. Direct compensation reflects the value of land taken whereas indirect compensation subsidizes farmers whose retained land is negatively affected.” Ding (2007, p. 3).
5 The concept of land value capture can be traced back to Adam Smith in the UK in the 18 th century and was popularized by Henry George in the USA in the 19 th century. Ingram and Hong (2012, p. xiii). Historical precedents going back to the construction of roads by the Roman Empire are described in Smolka (2013, pp. 13-14).
6 Smolka (2013, p. 3) “. . . examines three categories of voluntary and compulsory applications of tools affecting existing, new, or changing land uses in single or multiple property development projects: property taxation and betterment contributions; exactions and other direct negotiations for charges for building rights or for the transfer of development rights; and large-scale approaches such as development of public land through privatization or acquisition, land readjustment, and public auctions of bonds for purchasing building rights.”
Community Benefits Agreements. In politically advanced countries, the affected population often has enough power to negotiate with the project developer a form of land value capture termed a “community benefits agreement” These agreements include benefits that range from very simple ones such as a building a park or a school to more complicated ones such as reserving a certain number or percentage of construction jobs for local residents.
Environmental Impacts. In many cases, the environmental impact is a contentious issue associated with land acquisition for major projects (a hydroelectric dam or a copper mine, for example), but this impact is beyond the scope of this paper.7
Reform Zones. An American economist has recently advanced some innovative ideas for developing new cities or “reform zones”.8 Noting that the world’s urban population is projected to grow by several billion people in the next 50 years, he contrasts the option of expanding existing cities with the alternative of creating new cities. In this paper, we draw on his work and others to show how the Dawei Deep Seaport and Industrial Zone project in Myanmar could become a global gold standard for projects of this scale. (See Part Three.)
7 The relationship between land control and armed conflict is also beyond the scope of this paper. Generally: “Increasing scarcity of land in the presence of high rates of population growth, possibly along with a historical legacy of discrimination and highly unequal land access, implies that many historical and contemporary conflicts have their roots in struggles over land. This suggests a special role for land policy in many post-conflict settings.” Deininger (2003, xl-xli)
8 Paul Romer. See www.paulromer.net and http://urbanizationproject.org/ .
Part Two: Land Acquisition in Myanmar and Other Countries
Land Policy. Every country has a formal or informal set of land policies. Land acquisition operates in the context of these national and local policies.9
Different Purposes. Land policies can have several, sometimes conflicting purposes, which vary with the political setting. In an authoritarian state, the core purpose might be preserving the ruling group’s ability to use land to advance its interests. In a socialist state, in theory at least, the purpose is to ensure that land is used to meet the needs of all citizens. In a market-based democracy where the rule of law prevails, the purpose is to achieve fairness in the ownership, transfer, and use of land.10
Land Policy and Economic Growth. In developing countries, land policy has usually been developed with a view to driving economic growth. Recently, concerns about environmental sustainability have shaped land policies.
Land Laws and Regulations. Land policies are normally reflected in a set of laws adopted at the national and sub-national levels. In some cases, a law is enacted that establishes the rules for land acquisition for one specific major project. Urban areas usually have strict zoning regulations that affect the feasibility of major projects.
Enforcement of Land Laws. In low-income countries in particular, land policies and related laws and regulations may be little more than pieces of paper. One requirement of an effective land policy is enforcement, which depends on a level of state capacity that is achieved in few low-income countries. Inspectors who can assess penalties for violations are just the first step in enforcement. Equally important are courts that can produce fair judgments of appeals and resolve conflicts.11
9 “As a 2003 World Bank analysis of land policies in over seventy countries demonstrated, countries with more equitable initial land distribution achieved growth rates that were significantly higher than countries where land distribution was less equitable. Indeed, smallholder farms can be highly productive, and they can do more to reduce poverty than agribusinesses. Fink (2015, p. 263).
“Land policy issues are complex, country-specific, of a long-term nature, and often controversial politically. Even though specific interventions in the land policy area can make society better off, such measures may be challenged by vested interests that derive benefits from the status quo. To prevent stalemate or inaction, proper sequencing of reforms and attention to their political economy will be critical. To make reforms feasible, strong local capacity, an open and broadly based policy dialogue, carefully chosen and evaluated pilots, and sharing of experience across countries will be essential, and can also help build capacity for policy formulation.” Deininger (2003, xliv)
10 A World Bank study mentioned three purposes of land policy: to provide secure tenure to land, to facilitate the exchange and distribution of land, and to promote socially desirable land allocation and utilization. See Deininger (2003).
11 “…inefficiencies in the land administration institutions responsible for demarcation of boundaries, registration and record keeping, adjudication of rights, and resolution of conflict can still preclude realization of many of the benefits of secure tenure.” Deininger (2003, xxviii). “Their shortage of administrative capacity notwithstanding, many developing countries rely disproportionately on a regulatory rather than a fiscal approach, often with the result of encouraging discretionary bureaucratic behavior.” Deininger (2003, xxxviii).
The Dawei Deep Seaport and Industrial Zone Project. In this paper, we are especially concerned with land policy in Myanmar and how it may shape the development of the nascent Dawei Deep Seaport and Industrial Zone project.
Myanmar12
Geography. Land policy in Myanmar is complicated because of its particular geography and history. To begin with, the country is divided between a lowland core centered on the Ayeyarwaddy River and its delta and the mountainous areas along its borders with Bangladesh, India, China, Laos, and Thailand. Roughly sixty percent of the country’s population lives in the central core and is predominantly Buddhist and ethnically Bamar.13 The rest of the population is comprised of dozens of mostly non-Buddhist ethnic minorities that have been at odds with the lowland population for centuries. This division has produced the world’s longest continuing civil war, beginning shortly after independence in 1948 and remaining unresolved today.
History. Myanmar/Burma became a colony of British Empire in a series of three wars in the 1800s. It was governed as a province of India until the 1930s when it was granted status as a separate colony. The Imperial Japanese Army drove the British out of Burma in 1942 with the help of a small group of Japan-trained Burmese officers led by General Aung San, the father of Aung San Suu Kyi. The Burmese army switched sides to help the Allies defeat Japan in Burma in 1945, and then it fought to gain independence from the U.K.
Democratic Rule in the 1950s. British laws and institutions were well established in Burma at the time of independence in 1948, but were enforced mainly in the lowland areas. Customary law was respected in most of the borderlands inhabited by the ethnic minorities, including slash-and-burn (rotational or shifting) cropping. Independent Burma’s first constitution established a parliamentary form of government modeled on the British system.14 Pre-independence laws remained in effect, including state ownership of all land but with relatively strong support for the land usage rights of private citizens. In addition, the new government took steps to recover land from foreigners and redistribute it to landless peasants. Significantly, the 1947 Constitution granted the ethnic states control of land within their territories, but this was trumped by a 1953 law that authorized the government to nationalize land anywhere in the Union.
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12 See Fink (2015) for an overview of land policy in Myanmar.
13 The national census in 2014 yielded a total population count of 53 million.
14 Burma became independent on 4 January 1948, but its first constitution was approved the year before and therefore has been labeled the 1947 Constitution.
Burmese Socialism 1962-1988. The parliamentary system was replaced in 1962 by an authoritarian system of extreme socialism presided over by General Ne Win. Total state control of land was enshrined in the 1974 constitution. Most of the modern industrial sector was nationalized, but rural landholding was not changed appreciably apart from land seized by the military in the course of operations against communist and ethnic armed groups.15
Repression and Sanctions 1988-2011. The popular uprising in 1988, which came to be led by Aung San Suu Kyi, brought to power a military junta that quickly moved to eliminate the worst features of the socialist system and remove obstacles to market-based trade and investment.16 Over the next twenty years, usage rights over a considerable amount of rural land were transferred to business “cronies” of the military for timber harvesting, mining, rubber plantations, etc. In addition, many valuable urban properties were transferred to favored parties for commercial and residential development.17 In addition, farmers in areas served by government irrigation systems were required to grow specific crops instead of being free to seek the best return. The landless labor force grew measurably in this period and millions of Myanmar citizens emigrated to Thailand and beyond to escape economic deprivation, political repression, and armed conflict.
Land Confiscation. Little was done in the SLORC/SPDC era to improve a seriously deficient land registration system. Many farmers, for example, did not possess official land-use certificates because they did not trust the authorities or could not afford the bribes demanded. Often they had receipts for the annual land taxes they had paid over many years, but these were usually not sufficient to establish a usage right when a powerful interest backed by the government was confiscating their land. Land deemed to be fallow or vacant was especially vulnerable to confiscation, along with cultivated land in conflict areas.
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15 Farmers in this period were required meet production quotas and if they failed to deliver their quota they often lost the right to cultivate their land.
16 Initially the junta was the State Law and Order Restoration Council-SLORC. It was renamed in 1998 the State Peace and Development Council-SPDC. General Than Shwe emerged around 1992 as the unchallenged ruler of the country. Aung San Suu Kyi spent most of this period under house arrest. Western democracies ratcheted up sanctions as egregious acts of repression occurred, especially after the “Saffron Revolt” in September 2007.
17 The favored parties in both urban and rural areas included two military-controlled business conglomerates: UMEHL and MEC.
Major Projects. Another source of land alienation in the SLORC/SPDC era was a number of large infrastructure and mining projects. Notable among these were natural gas pipelines from fields in the Andaman Sea to Thailand, a set of hydropower dams in Kachin State for exporting electricity to China, the dual gas and oil pipelines from Kyaukphyu on the Arakan Coast across the middle of Myanmar to Yunnan Province in China, construction of the new capital in Naypyitaw, and a copper mine in Sagaing State.18
The Thein Sein Government. The SLORC/SPDC government promulgated a new constitution that was approved by voters in a tightly managed referendum in 2008. This constitution formed the basis for the national election in 2010 that led to the formation of the Thein Sein government in March 2011 and later the remarkably free and fair election in November 2015 won by the NLD in a landslide. State ownership of all land was re-affirmed in the 2008 Constitution, but private enterprise and private ownership of assets were also given broad support.
Land Grabbing. One of the priorities of the Thein Sein government was addressing widespread concerns about land grabbing of various kinds.19 The newly elected legislature, dominated by the government’s party (USDP) was also eager to show results in this area and rushed to pass two land laws in 2012 that were drafted by the government: the Farmland Law and the Vacant, Fallow, and Virgin Land Law. In addition, a Foreign Investment Law was passed that gave foreign investors new rights to lease land for up to 70 years and more freedom to use it than indigenous land holders. The land laws were considered seriously deficient by many experts and calls for amendments became undeniable. In response, the legislature passed in 2013 the Protecting Rights and Enhancing Economic Welfare of Farmers Law, generally considered a positive step, but only if enforced effectively.
Land Policy. Other related steps by the government include the formation in 2012 of a “Land Allocation and Utilization Supervisory Committee” to design a national land policy, and an order from President Thein Sein to the Settlement and Land Records Department to issue new land-use certificates. The 6th draft of a proposed National Land Use Policy was released publicly in May 2015. One prominent concern about this draft is its failure to address the issue of land concentration.20
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18 Moving the capital from Yangon to Naypyitaw also involved construction of a new limited-access highway over the 220 miles between the two cities.
19 Land grabbing in the Myanmar context is when a powerful group takes control of land away from historic or registered land users without fair compensation. The main groups engaged in land grabbing in the past 25 years have been the government, the military, and
private companies favored by the government. Land grabbing is also associated with certain foreign interests, especially hydropower and mining projects with Chinese partners, plantation and timber concessions with Thai partners, and more than a million (by most accounts) immigrants from China especially in northern Shan State.
20 An assessment of the 6th draft can be found in Transnational Institute (2015).
Returning Confiscated Land. The Thein Sein government and the legislature have also worked to return confiscated land to their original owners. The parliament in 2012 created a “Land Seizure Inquiry Commission” that, among other actions, prompted the military to give back almost 20,000 acres of undeveloped land it no longer needed.
Tax on Land Sales. To address the problem of escalating land prices in Yangon, driven in large part by a tsunami of foreign diplomats, aid agencies, international NGOs, media, and others arriving after 2011, the government introduced a tax on land sales with rates higher for urban property than rural property.
Special Economic Zones (SEZs). At the beginning of 2011, two months before President Thein Sein was sworn into office, the SLORC/SPDC government promulgated an Economic Zone Law and a companion law for the Dawei SEZ (see below). The origins of this law are obscure, as were many of the policy actions of the SPDC government. It seems to have come “out of the blue”. The Thein Sein government has supported the establishment of three SEZs. The first two are briefly described below. The third, at Kyaukphyu on the Arakan Coast seems to suffer from being a distinctly lower priority. In 2014, the Thein Sein government enacted a new SEZ law that revoked both of the 2011 SEZ laws (see also Appendix A).
The Thilawa Special Economic Zone Project.21 The Thilawa SEZ was conceived by the SLORC/SPDC government and linked to an inland port that became operational in 1996.22 A joint Japan-Myanmar collaboration to develop the SEZ was announced in January 2011, the same month two SEZ laws were promulgated, but the change in government two months later halted implementation. The Thein Sein government made an early decision to give priority to the build out of the Thilawa SEZ in cooperation with the government of Japan. The main partners in this foreign investment project are a consortium of Japanese companies, the government of Japan, and the Union of Myanmar Federation of Chambers of Commerce and Industry. Shares in the project company were successfully sold to the public in April 2014. In an effort to provide a model for land acquisition for major projects, the government attempted to follow global best practices in acquiring land for the Thilawa SEZ. Compensation for the land being acquired was openly negotiated and renegotiated, but the package that eventually emerged leaves room for improvement.
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21 The website of the Thilawa SEZ can be found here: http://myanmarthilawa.com/
22 Myanmar International Terminals Thilawa.
The Dawei Deep Seaport and Industrial Zone Project.23 In 2010, the SPDC government announced the award of a large concession for the project to one of Thailand’s largest construction companies: Italian-Thai Development Public Company Ltd (ITD). At the beginning of 2011, two months before President Thein Sein was sworn into office, the SPDC promulgated a Dawei Special Economic Zone Law, a minor variation on a general SEZ Law promulgated at the same time. Very little progress was made in the next two years, by most accounts because ITD was unable to arrange the large amount of financing required. In 2013, the Thein Sein government terminated the ITD concession and entered into a partnership with the governments of Thailand and Japan to pursue the project. With a new government due to be installed in early 2016, very little construction has been taken place and there is little information beyond speculation about the pace and content of the development. The project is described in detail in Appendix A.
China
Summing Up. The land acquisition situation in China has been neatly summed up in Wong (2010):
In China, urban land is owned by the state. . . The right to use land is separate from land ownership and farm land remains owned by village collectives, governed by the village committees and the village’s Communist Party branch.
Following three decades of land acquisition, 40-50 million farmers have become landless urban residents and three million more are joining them each year. The majority report a decline in living standards following land acquisition. Currently there is no appeal mechanism for farmers to challenge land acquisition decisions imposed by local governments. The village collective, the owner of the farmland, is governed by the village committee and Communist Party village branch. Driven by political and economic interests, these governing bodies often sacrifice ordinary villagers' rights to fair compensation and resettlement.
The abolition of agricultural taxes in 2006 has, on the one hand, helped to ease the burden on the agricultural population; however, it has also led local governments to intensify land acquisition in order to generate revenue. Land lease prices have rocketed in recent years . . . Motivated by enormous profits, land acquisition has become a hotbed for corruption.
The compensation scheme for farmers who lose their land offers a very low rate, which comes to a maximum of 30 times the average output value three years preceding land expropriation . . . There has recently been a rise of mass protests in China, estimated at 200,000 in 2011. 50% to 65% of these are related to land acquisition.
The central government, while acknowledging the unfairness, corruption and social conflicts surrounding land acquisition, finds itself in an awkward position, as its fiscal budget is heavily supported by the tax contributions of local governments. Land revenues account for approximately 40% of local government tax revenues.
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23 The Thein Sein government has established a third SEZ at Kyaukphyu in Rakhine State. This is the port on the Arakan Coast where the pipeline from the Shwe natural gas field makes landfall and where the dual natural gas and crude oil pipelines across the heart of Myanmar to Yunnan Province in China begin. Planning for this SEZ is less advanced than for the other two.
Land Policy. In the early 1950s, the Communist Party of China expropriated land from landlords. Land policy in China evolved rapidly after the country began the transition to a market-based economy in the late 1970s and subsequently experienced the longest period of rapid economic growth the world has seen. Land policy has shaped and been shaped by a massive migration of the population from rural areas to cities. In this period, the urbanized share of the population went from around 20 percent to almost 55 percent in 2014. The amount of land taken out of agricultural production for urbanization is so great that there is a visible problem of vacant and underutilized land in urban areas.24 Within five-year plans, quotas have been set for the conversion of rural land to urban land, but it appears that they have not been effectively enforced.25
Land Laws. Article 10 of the Chinese Constitution and the 1999 Land Administration Law (LAL) provide the basis for compulsory acquisition of land “owned” by collectives.26 One requirement is that the lives of land users being displaced should not be adversely affected. A Property Rights Law was enacted in 2007. New regulations to implement the laws have been issued every few years.
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24 Between 2000 and 2010, the amount of built-up land increased 50 percent while the urban population only increased 25 percent. One-third of the land in the country’s industrial zones is not being used. Liu, Fang, and Li (2014, p.8)
25 Hui, Bao, and Zhang (2013, p. 310).
26 Ding (2004). The LAL was passed in 1986 and amended in 1998. A number of “improvements” have been adopted since then.
Land Value Capture. The various government authorities lack tools used in other countries to capture a share of the increase in land value resulting from infrastructure investments and other development activities.27
Land Disputes. Land acquisition disputes are the leading category of appeals to China’s judicial system. Administrative weaknesses contribute to a land acquisition process that is not equitable or sustainable. These include lack of transparency, public participation, and an efficient dispute resolution process.28
Forms of Compensation. Under the LAL, four forms of compensation are recognized: for the market value of the land, for family resettlement, for physical improvements (e.g., buildings) and crops in the ground, and for new employment.29 Clear guidelines for compensation do not exist, however, leading to great variations and a sense that compensation is arbitrary. Since there is no private ownership of land, there is no private market for land that can be used as a benchmark for land value.
Development Zones. In mid-2004, there were 6,866 economic and industrial zones across the country, covering more than 38,600 km.30
India31
A Constitutional Right. Private ownership of land (“freehold”) is a constitutional right.
Basic Land Acts. For more than a century, land acquisition by government agencies was carried out by reference to the Land Acquisition Act of 1894, with no requirement for meaningful compensation and no recourse (appeal process). Explosive land protests after the enactment of the SEZ Act of 2005 led to the passage of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013 which came into force on January 1, 2014.
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27 Op.cit. However, some experiments with land value capture have been pursued at the local level. Liu, Fang, and Li (2014, p. 10).
28 Ding (2007, pp. 10-11)
29 op.cit, p.4. A prime source of employment for displaced land users has been town and village enterprises and other government-owned enterprises. In many cases, the new job comes with a change in residence to an urban area and its much sought after social services.
30 op.cit, p. 7.
31 See also Sanyal, Bishwapriya, and Chandan Deuskar. “A Better Way to Grow?: Town Planning Schemes as a Hybrid Land Readjustment Process in Ahmedabad, India” in Ingram and Hong (2012, pp. 149-182).
Weaknesses of the 2013 Act. The 2013 Act is considered a major step forward in addressing past abuses, but has weaknesses including limited applicability.32 Prior consent from 70 percent of the landowners is required for “public purpose” projects carried out by private developers and consent from 80 percent for a private purpose projects. The authorized compensation is highly controversial: four times the market value of land in rural areas and two times in urban areas, plus compensation for improvements (buildings), and crops. Non-monetary compensation, such as land-for-land, is also authorized, as well as leasing as distinct from outright sale. Resettlement assistance is required, plus a monthly subsistence allowance for a year, and other smaller allowances. Additional benefits are granted to landowners from Scheduled Castes and Scheduled Tribes. However, none of the compensation components are compulsory.
Strengths of the 2013 Act. Significantly, compensation is also provided to people who are not landowners but are adversely affected by land acquisition.33 Early and transparent consultation is required. Remarkably, the law requires that when land acquired is sold to a third party at a higher price then 40 percent of the increase in value must be given to the original owner. In the case of land acquired for urbanization, 20 percent of the developed land must be offered to the original owners in proportion to their shares and at a price based on the acquisition cost and the development costs. Affected families that have lost their jobs (means of livelihood) are given either a cash grant of an annuity for 20 years.
Amendments Under Consideration. The 2013 law was enacted by the Congress Party-led parliament. In 2015, more than 20 major amendments to this act were under consideration in the BJP Party-led parliament. In the face of strong protests, Prime Minister Modi suspended consideration of these amendments in mid-2015.34
Land Value Capture. Ingram and Hong (2012, p.9) sum up land value capture in India as follows:
local governments have increasingly relied on town planning schemes (TPS) to influence urban growth and to finance affordable housing and basic infrastructure. TPS is a hybrid land readjustment system that requires owners of agricultural land on the urban fringe to transfer up to 40 percent of their land to the government for redevelopment. In return, they receive cash compensation for the land taken and retain the remaining 60 percent of their land, which is reconstituted as urban plots with public infrastructure. The landowners can either build new homes on these serviced plots or sell the plots to developers. The government builds roads and other public facilities on a portion of the land received from the landowners and reserves a portion to sell at auction to cover the costs of infrastructure development.
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32 https://www.quora.com/What-are-the-pros-and-cons-of-the-Land-Acquisition-Act-2013 [accessed 21 November 2015]
33 Information in this paragraph is drawn from: http://www.livemint.com/Politics/FXZ9CrJApxRowyzLd8mb2O/All-you-wanted-to-
know-about-new-land-acquisition-Bill.html [accessed 21 November 2015]
34 http://www.thenational.ae/world/india/indias-modi-changes-tack-with-controversial-land-acquisition-law [accessed 21 November 2015]
Town Planning Schemes. In fact, town planning schemes have a long history in India, going back to colonial rule in 1915 when the authorities introduced them to address epidemics of infectious disease in Bombay (Mumbai). These schemes were considered an improvement over the earlier creation of “improvement trusts” to build new neighborhoods in place of old villages and slums, especially because they involved more involvement of stakeholders.35
Other Examples. A number of urban authorities in recent years have adopted a variety of land value capture approaches. One of the most interesting is for the construction of a ring road around the city of Ahmedabad. (See Text Box One).
Special Economic Zones. “Special Economic Zones have, [in recent years], become synonymous in India with grabbing land from farmers.”36 In 2007, suppression of a protest in West Bengal turned lethal and led to some dramatic changes in land policy. Land had been acquired for industrial zones with relatively little controversy since the First Five-Year Plan in the 1950s. Public sentiment changed in the context of implementing the SEZ Act of 2005, which provided a “framework for building hyper-liberalized economic enclaves” by private investors. In the next two years, more than 400 SEZs were approved across the country.
TEXT BOX ONE: The Ahmedabad Ring Road
An interesting example of land value capture is the approach taken in the construction of a ring road for the city of Ahmedabad, capital of the state of Gujarat and India’s sixth largest city.37
In 1999, the Ahmedabad Urban Development Authority produced a plan to develop the city’s road network and build up undeveloped land. The plan included a 47-mile ring road. To implement the plan, the Authority relied primarily on the “land readjustment” value capture tool. The state’s Town Planning and Urban Development Act of 1976 provided the legal basis for implementing land readjustment.
A land pool was formed from 103 separate land readjustment plans (called Town Planning Schemes) and 8-10 percent of the pooled land was allocated to a land bank for future sale through public auctions. At the outset, a conservative estimate of the market value of this land pool was US 1 billion.
At the same time, a system of “betterment charges” was introduced. An estimate was made of the value of a landowner’s new parcel of land after the ring road was constructed. The difference between this amount and the value of the parcel acquired was the increase in value associated with the project. Half of this increase was payable by the landowner to the city.
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35 Sanyal and Deuskar (2002, p. 161). They note that a similar policy was used by George Washington in the process of implementing L’Enfant’s plan for Washington, DC.
36 Levien (2012, p. 1)
37 The Ahmedabad case is drawn from Mittal (2014).
Land Recording and Enforcement. It is worth noting that India’s land recording system is well developed and that it has a powerful judicial system. At the same time, both are sources of endemic rent seeking that disadvantages poor and marginalized citizens.
Other Countries
Latin America. 38 Countries in Latin America have been using various approaches to land value capture for a number of years. Land value applications exist in many cities and towns even when no national legislation exists. Three approaches in particular are found in Latin America: (1) property taxation and betterment contributions, (2) exactions and other charges for building rights or the transfer of development rights, and (3) large-scale projects such as the development of public land through privatization or acquisition, land readjustment, and public auctions of bonds for purchasing building rights. (See Part Three for an explanation of alternative approaches.) In Bogota, Columbia, and Sao Paulo, Brazil, for example, betterment contributions have yielded more than one billon US dollars in revenue.
Sharing Benefits of Increasing Land Value. Land value capture in Latin America has been underpinned by prevailing sentiments that the benefits of development resulting from government investment (e.g., infrastructure) should be shared among all residents, and that no citizen should gain wealth that is not derived from his/her own effort (the principle of “unjustified enrichment with no cause”).
Puerto Madero, Argentina. Among a number of large-scale projects, the case of Puerto Madero in the metropolitan area of Buenos Aires in Argentina is especially interesting and is highlighted in Text Box Two.
TEXT BOX TWO: Land Value Capture in Puerto Madero, Argentina39
The site consisted of 160 hectares in an old port area, owned by the federal government. Redevelopment was proposed in 1989 and a joint national-city government corporation was created to undertake the project.
Land values at the outset were $150-300 per square meter, were later traded for $600 per square meter, and in 2013 were being sold for more than $1000 per square meter. One-third of the area was developed as waterways and parkland, and Puerto Madero has become a prime tourist destination in the city.
The project is not without its critics. They claim that too much of the benefit went to private interests and that the gentrified neighborhood that emerged is more like an enclave than a part of the city fabric. They believe that greater public involvement in the decision-making would have yielded a more socially satisfactory result.
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38 The Latin American experience is drawn from Smolka (2013). “Based on more than 15 years of education and research programs sponsored by the Lincoln Institute of Land Policy, this report provides a comprehensive review of the principles of value capture and
its antecedents in Latin America and elsewhere around the world.” (Smolka, 2013, p.2).
39 Drawn from Smolka (2013, pp 46-47).
Other Asian Countries. Tokyo and Hong Kong and Singapore have successfully used land value capture to finance new town development in connection with rail extension projects that avoided the necessity of providing government subsidies.40
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40 Ingram and Hong (2012, pp. 13-14). A examination of land value capture in Singapore can be found at:
http://works.bepress.com/cgi/viewcontent.cgi?article=1085&context=sockyong_phang [accessed 26 November 2015]
Part Three: Approaches to Land Value Capture
History. Historical precedents for land value capture go back to at least the Roman Empire.41 In the 17th century, England used it to build canals and France used it to build parks, roads, and bridges. Japan used it to promote urbanization after World War II. Since the 1970s, roughly one quarter of all jurisdictions in the United States have levied impact fees on developers to finance infrastructure improvements.
The United Nations. The practice of land value capture was recognized by the United Nations many years ago. Recommendation D.3b of the Vancouver Declaration emerging from the UN Habitat conference in 1976 includes this statement:42
The unearned increment resulting from the rise in land values resulting from change in use of land, from public investment or decision, or due to general growth of the community must be subject to appropriate recapture by public bodies (the community), unless the situation calls for other additional measures such as new patterns of ownership, the general acquisition of land by public bodies.
Seven Approaches. The number of distinct approaches to land value capture has grown over time. The most common and relevant today are described below.43
Land Taxes and Fees. The most basic kind of land value capture is the property tax. Especially when the tax is based on an assessment of the market value of the land (and its improvements), the level of the tax reflects investments by the government and other private parties that raise the value of the property above what it would have been in the absence of these investments. Even land transfer fees can be viewed as a form of land value capture because the funds obtained can be used to finance public sector spending for general infrastructure and social programs. In a number of cases, a temporary increase in general property tax rates has been used to generate financing for major infrastructure projects.
Betterment Contributions.44 These can be viewed as a variety of tax targeting a specific group of property owners/users who will benefit from a location-specific improvement, such as a paving a neighborhood road or extending municipal water service. Betterment contributions are widely used but typically they account for a small share of municipal revenues.45
Land Banking. A public authority purchases the ownership or usage rights for a large tract of land (usually undeveloped) likely to rise in value as a result of planned infrastructure improvements, urban expansion, etc. Later when the market value of the land has risen substantially, parcels are sold at auction and the “profit” is used to finance general infrastructure or government services.
Land Leasing. Land owned by a public authority is leased to private developers for long-term (e.g., 30 years) use. The lease payments can be front-loaded or periodic (e.g., monthly or annual). The lease payments are used to finance general infrastructure or government services. The private developers can be granted permission to transfer their usage rights to other parties, but a substantial transfer fee can be included in the lease contract.
Land Readjustment.46 A public authority can purchase odd shapes and sizes of contiguous land from private owners in urbanizing areas (or acquire their usage rights if the land is state-owned) in exchange for orderly parcels of equivalent value in the same areas that will be more marketable after construction of modern infrastructure. A portion of the acquired land (e.g., 20-30 percent) is retained by the public authority for public use (roads, parks, schools, etc.). Some of the new parcels can be retained by the authority and later sold to private developers with the proceeds used to finance general infrastructure or government services.47
Auctioning Development Bonds. This approach has been described as “the most original and effective instrument to mobilize land value increment generated by large-scale urban projects.”48 It is only possible to use, however, in a country with a reasonably developed domestic capital market. A prerequisite is a well-defined area with clear zoning restrictions such as the floor-area ratio (FAR). Developers bid for these bonds, which are used to pay for development that exceeds the specified zoning limits. This approach can only succeed when there is a high degree of transparency and faith that various public infrastructure plans and public service programs will be implemented successfully. The city of Sao Paulo in Brazil auctioned development bonds fourteen times between 2004 and 2010 and raised more than US$ 720 million in total.49
Community Benefits Agreements (CBA). Laura Wolf-Powers writes: “of all land value capture tools, the CBA is perhaps the most controversial”.50 She defines CBA as “a set of programmatic and material commitments that a private developer has made to win public support from the residents of a development area and others claiming a stake in its future”. One aspect that is controversial is whether the commitments made by the developer should be narrowly targeted to mitigate adverse impacts on the affected neighborhood or directed to citywide programs. Another controversial aspect is the ability of a special interest groups in the affected neighborhood to use political leverage to negotiate CBAs that primarily benefit themselves. Interest in the CBA approach emerged in the 1990s in the USA in urban areas that were targets of gentrification.51
Charter Cities. Paul Romer is an American economist who pioneered “endogenous growth theory” in the process of earning a PhD from the University of Chicago in 1983. As a professor of economics at Stanford University twenty years later, he made a bold proposal for creating “charter cities” in low-income countries failing meet the economic aspirations of their populations.52
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41 Smolka (2013, pp. 13-14).
42 Smolka (2013, p. 12).
43 Smolka (2013) places land value capture approaches in three categories: (1) taxes and fees, including betterment contributions; (2) exactions and other regulatory charges for building rights; and (3) a variety of tools used in large urban development projects.” (p. 20). He also provides a table summarizing the pros and cons of the main land value capture tools can be found in Smolka (p. 59).
44 Smolka (2013, pp21-31).
45 Smolka (2013, pp. 32-44) calls “exactions” the most common value capture tool used throughout Latin America. In this approach, developers are required to make a cash or in-kind contribution to obtain approval to build. The requirements can apply generally to any developer or can be negotiated project by project. A typical in-kind exaction requires the developer to set aside a certain amount of land for streets. Exactions in cash have been used to construct housing for low-income families. Another form of exaction is “transfer of development rights”. It compensates landowners who are prevented from fully developing their property (as a result of a new zoning action, for example) by entitling them to undertake a development of equivalent value elsewhere.
46 Mittal (2004, p. 315) summarizes the history of land readjustment going back to the 18th century.
47 Smolka (2013, pp. 49-52) describes a major land readjustment project in Medellin,
Colombia.
48 Smolka (2013, p. 53).
49 Smolka (2013, p. 54).
50 Wolf-Powers (2012, p. 217).
51 Wolf-Powers describes the pros and cons of the CBA approach in the case of a 50-acre, chemically contaminated former industrial site in Denver, Colorado, where the developer was proposing to undertake $1 billion of investment. The CBA was negotiated between 2002 and 2006.
52 Mallaby (2010) describes the origins and evolution of Romer’s charter city concept.
Derived from “Charter Schools”. The term was derived from the “charter school” movement in the USA where cities with failing public school systems began to enter into contracts (charters) with private businesses and NGOs to create new schools that would meet high academic standards. Similarly, governments in countries failing to get on a satisfactory economic growth path could grant a charter to a body of reputable experts (technocrats) from other countries to create a new city that would become a growth center for the whole country by the application of global best practice.
The Honduras Experience. While a small number of countries have expressed interest in adopting the charter city concept, only one country (Honduras) has reached the stage of enacting a charter city law. This case, however, evolved in a way that led Romer from disassociating himself from the effort. (See Text Box Three.) The charter city concept can be seen as a super macro approach to land value capture.
TEXT BOX THREE: A Charter City for Honduras53
At a TED Conference in the UK in 2009, Stanford University economist Paul Romer unveiled his concept of “charter cities”. The event was picked up in the media and came to the attention of an aide to Porfirio Lobo Sosa, the president of Honduras, who had recently come to power in a coup. The aide initiated discussions with Romer about creating a charter city in Honduras.
In early 2011, the Honduras National Congress passed a constitutional amendment allowing the creation of special development regions with some of the features of charter cities. The legislation was immediately challenged, especially due to perceived threats to indigenous/native communities. Then the government signed an MOU with a group of investors without consulting with Romer, prompting him to withdraw his support for the project.
In October 2012, the constitutional chamber of the Honduras Supreme Court ruled that the amendment was unconstitutional by a 4-1 vote. Two months later, the four judges in the majority were dismissed by the legislature. The judge in the minority was appointed to be the country’s attorney general.
In January 2013, new legislation to establish special development zones was passed by the National Congress with some features that critics considered being worse. The law was challenged and the reconstituted Supreme Court unanimously rejected their arguments in a decision rendered in mid-2014.
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53 Drawn from Kroth (2014). Footnote. A deeply critical account of the Honduras experience can be found at http://www.newrepublic.com/article/120559/honduras-charter-cities-spearheaded-us-conservatives-libertarians
The leading governance body for these zones under the new law is called the Committee for the Adoption of Best Practices. Most of the members appointed to this committee were extreme free-market advocates from the USA and Europe (including Ronald Reagan’s son Michael and anti-tax crusader Grover Norquist).
The Korean aid agency (KOICA) agreed to undertake a $4 million feasibility study for creating one of these zones in southern Honduras on the Pacific coast. The study was to be delivered in September 2014, but was delayed. In July 2015, the president of KOICA met with the president of Honduras and discussed the feasibility study, but as of November 2015 it had still not been released.
One of the sharpest criticisms of the Honduras special development zone initiative is insufficient transparency. It is not possible from Washington DC to assess the odds that one of the authorized zones will be built out in Honduras in the near term and that it will be considered successful.
Reform Zones.54 Reacting to his experience in promoting the concept of charter cities and relating this to the global urbanization process, Romer (since 2010, a professor of economics in the Stern School of Business and New York University and Director of its Urbanization Project) is currently promoting the concept of “reform zones”. A charter city can be viewed as a super-sized reform zone. At a minimum, a reform zone is a bounded land area in which new rules (policies) are adopted that are better (from a broad social perspective) than the old rules and are enforced effectively and fairly.
Concession Zones. Romer distinguishes a reform zone from a “concession zone”. A concession zone is a bounded land area in which the rules (policies) favor a small group of winners making a larger number of stakeholders losers. A reform policy is one that meets two tests: (a) it would be good for the policy to last forever; and (b) it would be good for the policy to apply to the whole country.
The Example of Shenzhen. A reform zone can be as small as an industrial park or as big as a city and many kinds have existed for decades in countries around the world. On the large-scale end of the spectrum, an especially interesting example is the city of Shenzhen in China, which was a small market town in the late 1970s and now is a city of 10 million inhabitants in a metropolitan area of 18 million people. A set of new rules—including its designation as a Special Economic Zone—produced this non-coerced increase in population.
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54 Drawn from a set of slides developed by Romer to explain the reform zone concept can be found at: http://urbanizationproject.org/blog/reform-zones-vs-concession-zones#.VlJRWco0M3B [accessed 22 November 2015]
Urbanization as Opportunity. Romer has come forward with two related insights. One of them is “urbanization as opportunity”.55 He notes that the urban population of the developing and emerging market countries is projected to grow from 2.5 billion today to 7.5 billion in 2115. One way to accommodate this increase in city dwellers is to expand existing cities; the other is to create new cities. Both ways can be seen as opportunities to introduce new rules that will create many winners and few losers. Creating new cities has some obvious advantages. In particular, the cost of land acquisition and the resettlement of residents can be greatly reduced.
Importing government services. The other Romer insight is “importing government services”. He notes the eagerness with which many developing countries have imported private sector goods and services from more advanced countries. He suggests that countries that seem stuck in a low-income trap or a middle-income trap may be overlooking the benefits of importing government services. One way of looking at charter cities is to see them as reform zones starting with a largely blank slate and importing the best available government services (notably a basic, though not necessarily Western, rule of law). It is also important not to view the Romer approach as an all-or-nothing package. He stresses the importance of flexibility and adapting rules to the local culture.
Governance. As the example of the nascent charter city in Honduras suggests, good governance lies at the heart of a successful reform zone or new city. Good governance inevitably begins with a robust legal framework provided by the host country. This is not easy to do in many countries because the institutions required to implement the rule of law are not well established. In particular, unlike the advanced democracies, when new governments take power they tend to undo or disregard policies and programs and projects initiated by their predecessors. Furthermore, two of the pillars of a solid legal framework are transparency and consultations with stakeholders—again not easy to get in many countries. With a solid legal framework in place, the next challenge is recruiting a suitable team of advisors and managers. The rest is easy to the extent that the necessary technology and financing is readily available.56
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55 Based on the video clip on the Urbanization Project website: http://urbanizationproject.org/ [accessed 11/22/15]
56 “[Town Planning Schemes are] not a silver bullet that will solve all the problems of past haphazard urban growth. It is one useful tool among many others . . . which collectively can create an environment for more orderly urban growth. One essential condition for any of these tools to be effective, however, is a capable local government that has been sufficiently empowered to deal with rapid urban expansion through a variety of means.” Sanyal and Deuskar (2012, p.179). See also Bahl and Linn (2014). Their report “explores alternative metropolitan governance and management approaches and assesses various financing tools, including locally raised taxes and user charges. It also explores external financing, such as transfers from higher-level government, borrowing, private-public partnerships, and international assistance.”
Last Words. “Effective implementation [of land value capture] remains the primary challenge, according to the results obtained in two Lincoln Institute surveys of public officials and others involved with urban management and public governance in [Latin America].”57
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57 Smolka (2013, p.60). In pages 62-63, Smolka provides a succinct summary of lessons learned from recent experience with land value capture in Latin America and offers recommendations for those considering its application in new places.
Part Four: A Novel Approach to Land Acquisition for the Dawei Project in Myanmar
65 Million People in 2040. In round numbers, the population of Myanmar is 50 million, of which roughly 30 percent or 15 million is urban. Assuming a smooth transition to civilian rule and the end of conflict, it is easy to imagine Myanmar’s annual crude population growth rate (births minus deaths) to be at least one percent over the next 25 years and to have another 2 million from Myanmar’s diaspora (especially undocumented workers in Thailand and Singapore) return to their home country. This would yield a population of around 65 million in 2040.
An Urban Population of 26 Million. At the same time, it is easy to imagine the urbanization rate rising from 30 percent to 40 percent, still well below the rate prevailing in the rest of East Asia. If so, Myanmar’s urban population would grow from 15 million now to around 26 million in 2040.
Expand Existing Cities or Create New Ones. One option for accommodating this increase in the urban population is to expand existing cities and towns. The other option is to establish new cities. So far, there seems to have been no public discussion of creating one or more new city in Myanmar. This paper seeks to initiate and encourage such a discussion.
The Dawei Opportunity. The Dawei SEZ may offer the best opportunity for adapting the most advanced urbanization concepts available to the particular circumstances of Myanmar in the process of creating a new city through non-coercive policies.
Key Steps. Four key steps in such a process are land acquisition, resettlement, employment, and governance. Each of these is discussed in turn below. The principles of land value capture are inherent in each step.
Land Acquisition
Usage Rights. All the land in the Dawei SEZ is owned by the government. What needs to be acquired therefore are usage rights.
Poor Records. One basic problem with acquiring usage rights that confronts the SEZ “Management Committee” (see Governance section below and Appendix A) is that existing land records are not reliable or fair. To begin with many land users are not in possession of valid land-use certificates, even though they may hold receipts for the payment of land taxes for many years. It appears that bribes are often required to obtain these certificates that exceed the capacity or willingness of the land users to obtain them.
Speculative Purchases. Another problem is land speculation. Wealthy people or well-placed companies have purchased land rights from historical land users in the SEZ area, not to cultivate crops but simply to hold in anticipation of being able to sell the rights at a much higher price as the SEZ is developed.
New Records. There is probably no simple approach to overcoming these problems. Instead a relatively labor-intensive and controversial approach could yield the best results from a broad social perspective. A first step would be for the Management Body to create a new transparent, auditable, and appealable record of land usage rights in the SEZ area—as of 31 December 2009, the end of the year before the SPDC government’s plan to create the Dawei SEZ was publicly disclosed.58 This step would be controversial because if carried out well it would presumably reveal numerous problems with the existing land records and precipitate disputes among competing claimants.
Recovering Recently Purchased Rights. A second step would be for the Management Committee to recover the land use rights purchased after 31 December 2009 at a “fair” price that could be the initial purchase price plus accrued interest comparable to the inflation rate (reflected in the Consumer Price Index) plus a mark-up (perhaps 10 percent) for good will. This step would be controversial because the speculative purchasers of these land use rights, generally politically powerful individuals and companies, would feel that they were receiving insufficient compensation for the rights they were losing.59
Equity Compensation for Historical Usage Rights. A third step would be for the Management Committee to purchase the remaining land use rights (those held by historical land users, i.e., the indigenous population) at fair prices. Here is perhaps the most novel part of this recommended approach. Compensation for acquired land rights generally has come in the form of front-loaded cash payments or in rights to a comparable parcel of land in a different location. An interesting alternative in the Dawei SEZ case is to provide historic land users with a long-term equity interest in the project that gives them a vested interest in its success. In similar situations (mass privatization in Eastern Europe, for example), rich and powerful interests have quickly purchased these rights from many poor and ill-informed holders who urgently need cash. To avoid this outcome, some amount of cash compensation to historical land-users would have to be provided and a moratorium period (such as ten years) when these rights cannot be sold would have to be set.60
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58 A case can be made for selecting an earlier date, such as 31 December 2005, before substantial speculative purchases were being made.
59 Some exceptional arrangements will be needed where new holders of user rights have made improvements such as planting rubber trees.
60 The practice in Myanmar of compensating historical users at different rates depending on the use of their land (housing, rice paddy, cashew nut plantation, etc.) would be retained.
Phased Implementation. Importantly, while the recovery of recently purchased land usage rights should be done right away, it would be preferable to purchase the rights held by historical land users over time as their land is required for the immediate construction of infrastructure and the initial industrial, commercial, and residential sites.
Resettlement
5,000 Households. Firm estimates of the population within the Dawei SEZ are hard to find. In fact, the precise boundaries of the Dawei SEZ may not yet be clear. Here we assume there are 25,000 people comprised of 5,000 households living in 20 villages. (It is important to note that some of these residents are landless: they have no usage rights. The overall compensation scheme should be fair for them, too.)
A Gold Standard. Resettlement has been difficult for major projects around the world despite substantial work on developing guidelines for socially acceptable implementation. The Dawei SEZ provides an opportunity to set a new “gold standard” for this process. The following set of actions would go far toward meeting this objective:
Transparency. The Management Committee would fully disclose plans that could materially benefit or harm the initial residents.
Consultation. A process of close consultation would be established, probably with an SEZ-wide resident council in addition to village-level councils.
Phased Resettlement. Households would be resettled only when the construction of new infrastructure or SEZ components is ready to begin.
Resettlement Design. Affected residents would be responsible for designing their new housing in the negotiated resettlement areas. It may make sense for some of them to start with temporary low-cost housing that can be sold to make room for higher standard housing as the SEZ gets built out.
Employment
A Minimum Household Income. A common problem with land acquisition for major projects has been the loss of livelihood for the displaced population (including the landless). The Dawei SEZ provides an opportunity to implement an approach that is well above average. The essence of the approach would be to guarantee a minimum income for every household in the zone for an extended period of time such as ten years (in addition to their equity interest). This would be optional, not mandatory, and would not begin until the household needed to be moved or had lost its means of livelihood.
New Jobs. Given that the population of the Dawei SEZ could easily grow to 500,000 within twenty years, and given that half of the current resident population consists of youth under the age of 18, it should not be difficult to provide productive employment for 10,000 adults who are not too old or handicapped to work. Many can be employed as common labor at wages that exceed the guaranteed household minimum. Residents accepting these jobs would lose the minimum household compensation, but the choice would be voluntary. Others can be trained for new jobs in the SEZ. The Management Body could provide loans to residents on favorable terms to start up new businesses (such as restaurants and grocery stores) to service the growing population of the SEZ.
Governance
The Biggest Challenge. Good governance that will make the Dawei SEZ a win-win project is undoubtedly the biggest challenge facing the Management Committee. Governance has been the Achilles Heel for projects of this kind globally.
Importing Government Services. One promising path to good governance for the Dawei SEZ is to apply some of the ideas associated with Paul Romer’s concept of “reform zones”. Importing government services is one of these ideas.
A Dawei Authority. A cursory examination of the SEZ Law of 2014 does not reveal any provisions that would preclude Dawei’s Management Committee from importing government services.61 The straightforward way of doing this would be through an international tender for a “Dawei Authority” perhaps financed by a loan from the World Bank or the Asian Development Bank.62
Social Amenities. Part of the governance responsibility would be to invest in social services/amenities such as schools and parks in addition to physical infrastructure.
Financing. The funds to pay for SEZ management, physical infrastructure, and social amenities would come from various forms of land value capture as the SEZ is built out. The main form would probably be the timely sale of usage rights to major developers by the Dawei Authority. Another form would be “community benefits agreements” with major industrial and commercial investors in the SEZ.
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61 Chapter 5, Paragraph 9 of the SEZ Law states that the Central Body “shall form, for each special economic zone, a management committee composed of personnel from relevant government departments and organizations, external personnel and personnel
from external organizations in order to carry out the duties imposed by this law for the relevant special economic zone.”
62 The Dawei Authority could be organized as a corporation that holds the usage rights for
all the land in the SEZ and in which the historical residents hold their equity shares.
Other Considerations
Outside the Borders. The Myanmar government would be well advised to begin thinking now about development outside the Dawei SEZ boundaries, which were set a number of years ago when the motivations and visions were different. Cities will grow organically without respecting arbitrary political limits in the absence of plans. Setting aside public space for infrastructure and social amenities before these borderlands are filled can reduce construction costs considerably.
Beyond Dawei. Innovations that appear worth pursuing in developing the Dawei SEZ could also be usefully applied in the other two SEZs and in the expansion of existing cities in Myanmar.
Beyond the Scope of This Paper. Many other aspects of developing a successful SEZ at Dawei are beyond the scope of this paper. One example is the prospect of rising sea levels due to global warming. This could argue for locating parts of the project further from the coast.
The Cutting Edge. A number of recent experiments are taking place with “garden cities” derived from ideas put forward by Ebenezer Howard in the U.K. in 1898. The goal is building new urban areas that are healthy and sustainable in contrast to the pollution and congestion commonly associated with city living. A Chinese urban planner is working on designs for garden cities in Hunan province. She explained that: “local authorities typically buy farmers out of their leases in order to build new towns and cities. This is often done with lump sums of cash. If garden-city projects did something different—for instance, set up trusts for long-term management, with residents as stakeholders—it would be a “policy breakthrough” . . .helping foster a fresh spirit of community engagement among new arrivals to China’s urban communities. But local governments would have to accept the idea of trusts, which is anything but guaranteed.” In Ahmedabad, India, residents are moving into a garden city area for 5,000 residents. 63
Epilogue. Daw Aung San Suu Kyi, leader of the party (NLD) that swept the November 8 election, has stressed the importance of bringing the “rule of law” to Myanmar. While there are many different interpretations of this term, few who take it seriously believe that achieving this objective will be easy. In this context, it is worth recalling a quip widely attributed to former British Prime Minister Gordon Brown:
In establishing the rule of law,
the first five hundred years are the hardest.
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63 http://foreignpolicy.com/2014/09/26/the-machine-is-a-garden/ [accessed 24 November 2015]
Appendix A
The Dawei Project and the SEZ Law
Interest in undertaking a major project at Dawei (formerly known as Tavoy) existed in the 1990s when both the Japanese aid agency (JICA) and the Korean aid agency (KOICA) carried out studies.64
In May 2008, an MOU between the governments of Myanmar and Thailand was signed for the “Development of Dawei Deep Seaport and Road Link to Bangkok”. A month later, an MOU was signed between the Myanmar Port Authority (a state economic enterprise under the Ministry of Transport) and the Italian-Thai Development Public Company Limited (ITD) to implement the project. Site surveys and technical investigations were carried out in 2008 and 2009. A “conceptual plan” was produced envisioning construction over ten years in three phases. The total cost of the planned infrastructure was put at $8.6 billion.
On 2 November 2010, a “framework agreement” was signed between the Myanmar Port Authority and ITD to develop the Dawei Project. The agreement “granted the right from the Myanmar Government to develop the Dawei Project covering the area of 250km2 for the development of a deep seaport, industrial estate, and transborder corridor link.” 65 The vision at this time included large-scale investments in power, petrochemicals, fertilizer, steel, cement, and paper in the industrial estate. The transborder corridor link would include an 8-lane highway, a railroad, oil and gas pipelines, and electric power transmission lines.66
The International Herald Tribune was the first Western media to pick up the news.67
Astonishingly, Prime Minister Abhisit of Thailand was quoted in this story as saying: “Some industries are not suitable to be located in Thailand. This is why they decided to set up [in Dawei]”. The context for this statement was strong public reaction to health problems that had emerged after the completion of Thailand’s largest petrochemical complex (at Map Ta Phut in southern Thailand). It is no surprise that this comment fueled anti-Dawei sentiment within Myanmar that remains a hurdle in getting the Dawei SEZ off the ground.
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64 ITD slide show provided to the author in 2011. In a private conversation, the author was advised that the Kita Kyushu SEZ in Japan was the model for the Dawei SEZ. In another such conversation, the author was told that a Chinese proposal around 2000 to build out Dawei had never received any encouragement from the SPDC government.
65 Italian-Thai Development Public Company Limited. Dawei: A New Global Gateway to Enhance ASEAN Economic Landscape. [a marketing brochure distributed in 2011 with an insert prepared by Baker & McKenzie on “Dawei Special Economic Zone Law”] 250
km 2 is equivalent to about 97 square miles, four times the size of Manhattan Island in New York City.
66 A press release issued a few days later describes the project as a “Build Operate and Transfer (BOT) concession” for 60 years and includes fourth component consisting of a “township for residential and commercial development and a tourism resort and recreation complex”.
67 http://www.nytimes.com/2010/11/27/world/asia/27iht-myanmar.html [accessed 23 November 2015]
The same story quotes the president of ITD (Premchai Karnasuta) linking the project directly to the head of the SPDC government (Senior General Than Shwe): “Than Shwe said he wanted this project to be like the Shenzhen economic zone”. It also reported that residents opposing the project estimated that almost 100,000 people in 19 villages would be disrupted by the project. (The ITD estimate was on the order of 20,000).
In December 2010, the Financial Times published a story about the Dawei Project.68
The story reported that ITD was entering into partnerships with several Myanmar companies, including the Max Myanmar Group headed by the prominent “crony” Zaw Zaw.69
In January 2011, two months before the Thein Sein government took office, the SPDC government promulgated a general Special Economic Zone Law and a companion Dawei Special Economic Zone Law. These appear to have been drafted by the Ministry of National Planning and Economic Development.70 These laws fell substantially short of international best practice. There was no public input in the drafting process.
ITD proceeded vigorously during 2011 to find major investors and commercial financing for the project, primarily from Thailand, Singapore, and Japan. Consultants were hired to produce feasibility and various technical studies. Some resettlement of households was initiated. An Environmental Impact Assessment was started and interest in World Bank and ADB financing was expressed.71
An early sign of trouble occurred in July 2011 when a battalion of the Karen National Liberation Army stopped construction on the road to Thailand to protest adverse impacts on the civilian population and the environment. Total project costs were now being reported in the press in the neighborhood of $60 billion.72 By the end of the year, however, the bloom seemed to have come off the rose, by some accounts because of concerns about ITD’s financial health.
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68 http://www.burmanet.org/news/2010/12/02/financial-times-why-thailand-invests-in-burma-%E2%80%93-simon-roughneen/ [accessed 23 November 2015]
69 Another partner mentioned elsewhere was Ayeyar Waddy Multitrade Company Ltd. From an email exchange with the author in February 2011.
70 Private communication with author, 22 March 2011.
71 Conversation by author with ITD representatives on 23 December 2011.
72 http://karennews.org/2011/07/knu-stops-tavoy-road-construction.html/ [accessed 23 November 2015]
Opposition to the Dawei SEZ grew during 2012, encouraged by reform-minded policies of the Thein Sein government, including suspension in September 2011 of the Chinese-backed Myitsone hydroelectric dam project in Kachin State. In January 2012, reacting to these protests, the government announced that it would block the construction of a 4,000 megawatt coal-fired power plant at Dawei. (It was a public relations gesture because the power plant was just a “gleam in the eye” that was far from being realized.)
In May 2012, the Bangkok Post reported that the Thai cabinet had approved 203 projects worth THB 33 billion for Dawei that had been proposed by the Thai National Social and Economic Development Board, to be implemented in three stages by the National Logistic Development Committee.73
Reuters reported in July 2012 that the Myanmar government and the Thai government agreed for the first time to work together to support the project. The agreement was reached during a visit to Bangkok by President Thein Sein in a meeting with Thai Prime Minister Yingluck Shinawatra.74
By the end of 2012, the governments of Myanmar and Thailand had decided to scrap the 2010 concession agreement with ITC and launch a new partnership to develop the Dawei SEZ.
A key step in restarting the project was the enactment by the Myanmar parliament in January 2014 of a new SEZ law (the Myanmar Economic Zones Law, No. 1/2014, 23 January 2014) replacing the two laws that had been promulgated by the SPDC government at the beginning of 2011. It is an improvement over the earlier laws from a global best practice perspective, but still falls short in a number of respects.
In May 2014, a military coup in Thailand removed Prime Minister Yingluck Shinawatra. Since a new approach to the project had already been decided upon with the government of Myanmar, this political change appears not have affected the Dawei SEZ project other than slowing implementation for a few months.
In May 2015, at a meeting in Tokyo, the leaders of Myanmar, Thailand and Japan signed an agreement to cooperate in the development of the Dawei SEZ.75 Press reports described the SEZ as covering 200 km2 and eventually costing $50 billion. In July 2015, a new MOU was signed by the three governments to implement the project.
In August 2015 in Naypyitaw, the Dawei SEZ Management Committee and a consortium of three Thai companies signed a concession agreement for the initial phase of the Dawei SEZ.76 The initial phase is to include “a small port, power plants, a two-lane road to Thailand, an LNG terminal, an initial township, a telecom landline, and an industrial estate focusing on labor-intensive industries”. Another press report noted that 300,000 jobs in the SEZ would be created by 2025.77 In the same month, the press reported that Royal Dutch Shell had formally agreed to participate in construction of the LNG terminal.78
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73 http://m.bangkokpost.com/topstories/294313 [accessed 23 November 2015]
74 Clipping in author files.
japanese-aid [accessed 24 November 2015]
Opposition to the Dawei SEZ was well organized by 2015. One of the leading opposition groups is the Dawei Development Association. Thailand’s leading environmental think tank, the Healthy Public Policy Foundation, issued a report in 2012 stressing the importance of doing thorough impact assessments.79 There has been more criticism than support from the academic community.80
The most recent in-depth report included these highlights:81
A Special Purpose Vehicle has already been formed between Thailand’s Neighbouring Countries Economic Development Cooperation Agency (NEDA) and Myanmar’s Foreign Economic Relations Department (FERD) under the name Dawei Special Economic Zone Development Company.
a 27 km2 industrial zone will handed over to the concessionaires . . . in four lots. The concessionaires must show they are making progress before each new plot is released, either through a 65pc occupancy rate or a certain number of jobs created, with lots scheduled to be handed over from 2016 through to completion in 2023.
Instead of steel mills and petrochemical complexes, the initial phase envisions light industry and garment factories. There is no deep sea port in the initial phase, only a small jetty. The previously imagined 8-lane highway to Thailand has been replaced with what will initially be a paved 2-lane road.
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[accessed 11 November 2015] The three companies are ITD, Rojana Industrial Park Public Company Limited, and LNG Plus International Company Limited.
77 http://asia.nikkei.com/Politics-Economy/Economy/First-concessions-signed-with-Thai-companies [accessed 24 November 2015]
78 http://consult-myanmar.com/tag/dawei-special-economic-zone/ [accessed 11 November 2015]
79 http://earthjournalism.net/stories/a-four-nation-corridor-daweis-special-economic-zone [accessed 15 November 2015]
80 See for example: http://asiapacific.anu.edu.au/newmandala/2014/10/23/myanmar-special-economic-zones-part-i/ [accessed 24 November 2015]
81 http://www.mmtimes.com/index.php/business/16802-imagining-dawei.html [accessed 15 Novembe 2015]
Under the SEZ Law of 2014, the top level of governance for all SEZs in Myanmar is the “Central Body” chaired by the President of the Republic of the Union of Myanmar [Thein Sein]. Under the Central Body, a Central Working Body, chaired by a Vice President of the Republic of the Union of Myanmar [U Nyan Tun].
The law also provides for Management Committees to be created for each SEZ as the investment licensing authorities of their respective SEZs.82 The Dawei SEZ Management Committee is chaired by Deputy Minister of the Ministry of Transport [U Han Sein]. The Minister of Labor [U Aye Myint] chairs the Dawei SEZ Working Committee reporting to the SEZ Management Committee.83
One has to expect a hiatus in the implementation of any plans to develop the Dawei SEZ because of the NLD’s landslide victory in the November 8 election. It is interesting that Aung San Suu Kyi’s first trip outside of Yangon after her release from house arrest in November 2010 was to Dawei—in January 2012. There is some evidence that her closest economic advisors agree with the priority the Thein Sein government has given to the Thilawa SEZ over the Dawei and Kyaukphyu SEZs.
N.B. The author is uncertain about the precise boundaries of the Dawei SEZ. The original plan specified an area of 250 square kilometers.84 An estimate of the population inside the boundaries indicated in the original plan, using the 2014 census data, came up with a total of 28,150.85 The Forestry Department in Dawei subsequently gave to the authors of this estimate a revised map of the Dawei SEZ with a much-reduced area, in particular cutting out the more densely settle southeast quadrant.86
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82 http://myanmarthilawa.com/sez-authority [accessed 15 November 2015]
83 http://www.irrawaddy.org/business/dawei-itd-projects-suspended-terminated-minister.html [accessed 15 November 2015] The same report mentions that residents who have already lost 6,000 acres of land have received compensation worth 33 billion kyats ($33 million).
84 Anonymous (2011, p. 28)
85 Dawei SEZ population estimates derived from 2014 township census data and the proportion of each township partially within the SEZ using census data and township boundaries published by the Myanmar Information Management Unit (MIMU). MS. Sheppard, S. M. and E. C. Saxon, 2015. Brisbane: Forest Inform Pty. Ltd.
86 Personal communication, 30 November 2015.
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N.B. The author was unable to obtain a copy of a potentially useful source: a book published by the Thailand Information Center at Chulalongkorn University in 2013.87
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It appears that the case of the City Fathers in Los Angeles acquiring Chavez Ravine to build a baseball stadium for the Brooklyn Dodgers in 1956 by using Emminent Domain is still rancoring members of the community nearly 70 years later..