Myanmar’s new investment push
MYANMAR’S government hopes this year will be a watershed for the country’s investment and development plans. The emphasis is firmly on liberalisation and attracting foreign investors, as well as involving the local business community in the expected economic resurgence.
The government has made business and economic development one of its priorities for the coming year, though significant obstacles remain in the way of achieving this strategic vision.
“This will be a year of real reform,” a senior government representative said recently.
Significant changes in the pipeline will be led by liberalisation of the financial sector – especially banking and insurance, said government chief economic adviser Sean Turnell.
“The insurance reforms will soon be followed by further expanded opportunities for foreign banks, greater access to international equity capital for domestic banks and much greater freedoms for all banks to price for risk in terms of interest rates on selected products,” he predicted.
The hope is also that these changes will spur growth in the country’s fledgling bond market. It could even lead to the coming of age of the sleepy Yangon Stock Exchange ( YSX).
The Myanmar business community, meanwhile, is taking a more active role in supporting change by organising the Invest Myanmar Summit 2019. The biggest ever event of its kind in the country will be held in the capital Naypyidaw at the end of this month.
Organised by the Union of Myanmar Federation of Chambers of Commerce and Industries (UMFCCI), the summit is intended to showcase the country’s economic potential, highlight key sectors and provide matchmaking opportunities between foreign and local businesses.
It will cover both regional as well as national investment opportunities.
“The Investment Myanmar Summit 2019 is a unique event, not to be missed,” said entrepreneur Wai Phyo, the UMFCCI vice-president and chairman of the event.
“It is a demonstration of deep collaboration between the private and public sectors to attract investment and rejuvenate the economy.”
“We had to do our bit to attract investment into the country at this time of pressing need,” added businessman Moe Kyaw, head of Myan- mar Marketing Research and Development Company.
The event will involve a dozen ministries and 10 regional governments. Eight priority business sectors have been identified for special attention, with 120 state and private-sector projects showcased – worth over $3 billion in potential investment value.
There will be dedicated presentations on the government’s strategic blueprint – the Myanmar Sustainable Development Plan (MSDP) – and the National Project Bank that will be used to implement the plan.
Deputy Minister of Planning and Finance Set Aung, who has developed the project bank, will attend the event to explain its purpose and functions.
“The project bank is a very significant mechanism for implementing the policies of the MDSP,” he said recently.
Some 250 strategic action plans have already been identified, but must be broken down further into concrete projects and programmes, before financing mechanisms, including public-private partnerships, are considered.
The country’s civilian leader, State Counsellor Aung San Suu Kyi, will give the keynote address, underlining the government’s political commitment to spurring the economy forward.
Trade war benefit
Authorities hope the summit will strengthen the links between foreign and local businesses, attract more foreign investment for infrastructure and increase the diversification of investment into different states and regions, said Aung Naing Oo, director-general of the Directorate of Investment and Company Administration (Dica).
Approved foreign direct investment last year was disappointingly lower than in recent previous years, at $3.5 billion. But Aung Naing Oo is confident that several key factors will support the momentum of economic growth and provide a major impetus for attracting foreign investment this year.
They include the new Companies Law – introduced last year – which removes the restrictions and barriers for foreigners to operate businesses in Myanmar by having 35 per cent ownership in local companies; the rebound of real estate sector as a result of the enforcement of Condominium Law; and the implementation of some infrastructure projects as part of the Project Bank initiative.
The Dica chief also believes the country could benefit from the fallout of any deepening trade war between China and the US. “There is a possibility of some factories being shifted from China to Myanmar as a consequence,” he said.
But he also admits there are issues that will reduce Myanmar’s attractiveness to foreign investors.
“The implications if the US withdraws its Generalised System of Preferences [GSP] would especially hamper FDI inflow, and the continuing Rakhine issue remains an obstacle,” he said, referring to the conflict-scarred state in the country’s northwest.
Naing Ko Ko, a Myanmar political and economic analyst at Australian National University, is more blunt in his assessment of the dangers that the conflict in Rakhine poses.
“Myanmar’s reputation management and risk mitigation carries enormous obstacles for international investors who will look at those harm aspects before investing in the country,” he said.
“To mitigate that reputational harm, Naypyidaw needs to introduce an ethical economic foreign policy that includes a trade promotion strategy and a convincing foreign investment policy.”
But government insiders remain bullish about the prospects for economic development, improved busi- ness confidence and stronger flows of foreign investment. Apart from the liberalisation of the financial sector, real improvements should be felt as well on the infrastructure front, said Turnell.
“In construction and financing, all sorts of spin-offs from employment generation to financial innovation can be expected – with the longer term payoff of transport, electricity and other infrastructure supporting rather than inhibiting private-sector activities,” he added.
‘Time to invest in Myanmar’
Naing Ko Ko is more cautious but accepts that liberalising the financial sector will be the key to any economic take-off.
“The development of the bond market and the credit market should be the NLD government’s top policy priority for 2019-20, but money making and credit creation should not be in Yangon and Mandalay, where businesses are flooded with rent-seekers,” he said.
He suggests that international banks, which so far have only representative offices in Yangon, and nonbank financial institutions should be allowed to open branches in regional cities – especially in Mandalay, Monywa, Mawlamyine, Myitkyina and Pathein – and be permitted to offer both project and trade financing.
Most experts endorse this approach as the best means for the country to achieve more sustainable and equitable development. The government is committed to this strategy, according to Turnell.
“Access to affordable finance at every level is critical – and on this front I am very confident of the progress made, and even more on what’s to come,” he said. “But clearly greater allocations to education and health are needed, sowing the seeds for greater human capital accumulation – which is fundamental to creating equality of opportunity.”
“It’s time to invest in Myanmar,” Thaung Tun, the minister of the newly created Ministry of Investment and Foreign Economic Relations and chairman of the Myanmar Investment Commission, told a visiting Korean delegation recently at an event held to promote the summit.
But despite this upbeat mood, foreign investors remain cautious. There is very much a “wait and see” attitude among many potential investors, including those from Asia who tend to be less distracted by the events in Rakhine.
Many businessmen in Thailand and Singapore have recently said they were keen to do business in Myanmar but were looking for greater official encouragement from the government.
Some financial analysts believe that concrete financial sector liberalisation and the development of the stock market will encourage more foreign investors.
The longer-term prospects for the local stock market are extremely good, according to leader of the YSX Special Taskforce, Neville Daw.
“Although in the short term there is still a lot of infrastructure work to be finished – and it is important for the integrity of the whole Myanmar capital markets that these are done correctly,” he said.
“The major game changers have been the reforming of the rules on foreign participation and the announcement of insurance industry liberalisation.
“From the work of the YSX Special Taskforce, we know there is both a need for companies to raise finance and potential interest from both institutional and ‘frontier’ investment funds. This means the YSX is able to now offer an alternative source of financing other than traditional bank loans.”