Five ba­sic re­forms urged to lure FDI

Myan­mar is in­ten­si­fy­ing ef­forts to draw more for­eign di­rect in­vest­ment (FDI), which has taken a beat­ing from a fall­ing ex­change rate and crit­i­cism over the Rakhine cri­sis.

The Myanmar Times - Weekend - - Front Page - busi­ness@mm­times.com Photo: Shin Moe Myint

MYAN­MAR is rais­ing ef­forts to draw for­eign di­rect in­vest­ments (FDI) into the coun­try af­ter its econ­omy took a beat­ing in re­cent quar­ters, hit by the slide of the kyat against the dol­lar.

Even though the Cen­tral Bank of Myan­mar has taken mea­sures to sta­bilise the lo­cal cur­rency, the kyat may be in for fur­ther volatil­ity in the com­ing months if the cur­rent geopo­lit­i­cal land­scape is any­thing to go by.

Trade ten­sions be­tween the US and China have in­ten­si­fied, while re­la­tions be­tween oil su­per­power Saudi Ara­bia and its west­ern al­lies have soured fol­low­ing the mur­der of Saudi Ara­bian Wash­ing­ton Post jour­nal­ist Ja­mal Kashoggi in Istanbul on Oc­to­ber 5.

Things could also get shaky over in Europe, as Italy, al­ready one of the most in­debted coun­tries in the world, pre­pares to push a higher spend­ing bud­get past the Euro­pean Com­mis­sion. Mean­while, the UK’S with­drawal from the EU could roil mar­kets in the months to come. All that could prompt fur­ther cap­i­tal out­flows and ex­change rate volatil­ity for Myan­mar.

Against that back­drop, the Di­rec­torate of In­vest­ment and Com­pany Ad­min­is­tra­tion (DICA) on Oc­to­ber 4 re­leased the Myan­mar In­vest­ment Pro­mo­tion Plan (MIPP) pro­mot­ing in­vest­ments in four growth ar­eas of the econ­omy for the 20-year pe­riod be­tween 2016 and 2036.

These in­clude ex­port-ori­ented, mar­ket-ori­ented, re­source-based and knowl­edge-based in­dus­tries.

The plan is to fo­cus on at­tract­ing for­eign di­rect in­vest­ments (FDI) from Ja­pan, South Korea and Greater China now that in­vest­ments from the west are look­ing less likely due to the Rakhine cri­sis. In fact, the EU is re­ported to be mulling eco­nomic sanc­tions against the coun­try, a move likely to dampen growth, if im­ple­mented.

Mean­while, the gov­ern­ment will for­mu­late new poli­cies and reg­u­la­tions, en­cour­age in­sti­tu­tional and in­fra­struc­ture de­vel­op­ment and lever­age on lo­cal busi­ness sys­tems, in­dus­tries and hu­man re­sources to sup­port growth, ac­cord­ing to the MIPP.

Based on DICA’S es­ti­mates, in­vest­ments are ex­pected to to­tal US$5.8 bil­lion (K9.2 tril­lion) per year for the next five years. Last year, Myan­mar re­ceived US$6.1 bil­lion in FDI. Over the next 20 years, FDI is fore­cast to reach US$220 bil­lion un­der the MIPP.

Yet, some of the most ba­sic re­quire­ments to en­cour­age for­eign in­vestors to bring their funds into the coun­try have not been met. Based on The Myan­mar Times’ in­ter­views with gov­ern­ment of­fi­cials and the busi­ness com­mu­nity, here are five ar­eas that need to be im­proved be­fore the coun­try can ex­pect a mean­ing­ful boost in FDI:

Less red tape Be­fore com­mit­ting any cap­i­tal, in­vestors typ­i­cally en­quire about doc­u­men­ta­tion and the pro­ce­dures in­volved in ap­ply­ing for per­mits and other ap­provals.

For ex­am­ple, un­der cur­rent reg­u­la­tions, per­mis­sion to in­vest will be granted within 60 days if the re­quired doc­u­men­ta­tion is com­plete. But some doc­u­ments, such as depart­ment rec­om­men­da­tions and land-re­lated pa­pers, are dif­fi­cult to ob­tain.

“It would be eas­ier for in­vestors if the rel­e­vant de­part­ments col­lected these doc­u­ments on their be­half,” said U Soe Tun, a lo­cal busi­ness­man.

U Ye Min Oo, mem­ber of the Nl­dled gov­ern­ment’s eco­nomic com­mit­tee, said bet­ter co­op­er­a­tion be­tween the min­istries is needed as ap­provals may be re­quired from mul­ti­ple de­part­ments. “De­lays will oc­cur if the min­istries do not make the process easy and this will deter in­vestors,” he said.

All min­istries should also co­op­er­ate with the Myan­mar In­vest­ment Com­mis­sion (MIC) and DICA, which have been given the au­thor­ity to ap­prove FDI.

“This will help the MIC guar­an­tee the time­frame needed to process ap­pli­ca­tions and de­cide on which in­vest­ments to pri­ori­tise. If the pro­cesses for in­vest­ments are too both­er­some and dif­fi­cult, in­vestors will not come,” U Ye Min Oo said.

Power sup­ply One of the most ba­sic de­mands by for­eign in­vestors is a re­li­able sup­ply of elec­tric­ity with which to con­duct busi­ness. Yet, power out­ages are still com­mon in Yan­gon dur­ing the wet months. As such, Myan­mar is un­der pres­sure to dou­ble its power pro­duc­tion ca­pac­ity to 6000 megawatts (MW) within the next two years in or­der to meet ris­ing de­mand.

So far, a 225MW com­bined-cy­cle gas plant in My­ingyan has com­menced op­er­a­tions. This year, a sec­ond gas plant pro­duc­ing 90MW of en­ergy in My­ingyan as well as a 145MW plant in Belin, Kyaukse will come on­stream, ac­cord­ing to the Min­istry of Elec­tric­ity and En­ergy (MOEE).

The coun­try’s first so­lar power plant, lo­cated in Minbu, will also start op­er­at­ing next month. The plant is ex­pected to pro­duce 40 megawatts ini­tially but will pro­duce 170MW once fully oper­a­tional, ac­cord­ing to U Maung Maung Kyaw, chief en­gi­neer of the Elec­tric Sup­ply En­ter­prise.

Over the next two years, Myan­mar is aiming to sup­ply 8 per­cent of the coun­try’s elec­tric­ity through re­new­able en­ergy sources such as wind and so­lar power. By 2025, it expects that share to rise to 12pc.

How­ever, U Soe Myint, deputy per­ma­nent sec­re­tary of elec­tric­ity at the MOEE, warned that some projects may still be de­layed, de­pend­ing on

the avail­abil­ity of funds. The min­istry is ex­pected to spend K578 bil­lion next year, which in­cludes in­ter­na­tional aid.

The MOEE is also ne­go­ti­at­ing terms for sev­eral power pur­chase agree­ments un­der which it will buy liq­ue­fied nat­u­ral gas (LNG) to meet the bulk of Myan­mar’s en­ergy re­quire­ments by 2020. Still, in­sid­ers and an­a­lysts warn that the LNG op­tion, which will in­volve costly in­fra­struc­ture and com­plex lo­gis­ti­cal re­quire­ments, is un­likely to come cheap.

In that light, fo­cus has cen­tered on tap­ping Myan­mar’s own fields for gas to meet the coun­try’s grow­ing de­mand. Now, in­sid­ers say the gov­ern­ment should take into ac­count do­mes­tic needs when it opens up new gas fields next year.

IP pro­tec­tion Myan­mar’s lack of in­tel­lec­tual prop­erty (IP) rights has been among the big­gest bar­ri­ers to FDI. To date, the coun­try is still re­ly­ing on the 1909 Registration Act and 1914 Myan­mar Copy­right Act to re­solve is­sues con­cern­ing IP.

As such, busi­nesses, in­clud­ing for­eign ones, have lit­tle in­cen­tive to in­no­vate due to the like­li­hood of pla­gia­rism. Strong IP laws would pre­vent this, thereby boost­ing in­no­va­tion and cre­ativ­ity in the coun­try.

“Cur­rently, our coun­try does not have com­pre­hen­sive, up-to-date IP laws. There are no ex­clu­sive laws to pro­tect IP so we need bet­ter laws ur­gently,” U Moe Mynn Thu, Myan­mar coun­cil mem­ber of the ASEAN In­tel­lec­tual Prop­erty As­so­ci­a­tion, told The Myan­mar Times re­cently.

“If for­eign brands and com­pa­nies are dis­cour­aged from ex­plor­ing the lo­cal mar­ket be­cause of a lack of IP pro­tec­tion, this means lost op­por­tu­ni­ties to grow the coun­try’s econ­omy,” said U Kyaw Kyaw Win, the chair­man of Myan­mar’s In­tel­lec­tual Prop­erty Pro­pri­etors’ As­so­ci­a­tion.

In Jan­uary this year, draft leg­is­la­tion cover­ing IP rights, copy right laws, in­dus­trial laws, patents and trade­marks was de­bated in the Amotha Hlut­taw.

Next month, the draft laws will be dis­cussed at the Pyithu Hlut­taw. If approved, en­act­ment of the laws will come about quickly, said U Myat Nya­nar Soe, the joint sec­re­tary of the Law Draft­ing Co­or­di­nat­ing Com­mit­tee.

Fi­nan­cial re­form Bank­ing and fi­nance is one of the sec­tors most in need of re­form to make way for more FDI and eco­nomic de­vel­op­ment.

One of the con­cerns for the econ­omy of late is the de­pre­ci­at­ing value of the Myan­mar kyat, which has driven up the cost of im­ports and in­hib­ited dis­cre­tionary spend­ing. The ris­ing value of the US dol­lar ver­sus the kyat has also been a prob­lem for firms that pay lo­cal salaries in dol­lar equiv­a­lent terms.

U Aung Ko Ko, a lo­cal econ­o­mist, said “it is nec­es­sary for Myan­mar to trade in the re­spec­tive cur­ren­cies of its ma­jor trade part­ners. The list of Myan­mar’s ma­jor trade part­ners will not change much in the next 10 years so ef­forts must be taken to soften the blow of volatile ex­change rates for Myan­mar busi­nesses.”

For its part, the Cen­tral Bank of Myan­mar (CBM) has taken pro­gres­sive steps to sta­bilise the ex­change rate, in­clud­ing al­low­ing the kyat to float and in­tro­duc­ing cur­rency swaps be­tween banks for the first time. Still, it will be a while yet be­fore those mea­sures take ef­fect.

The CBM should also act to get to a sit­u­a­tion where the bank­ing in­dus­try is able to pro­vide the funds nec­es­sary for busi­nesses de­velop. This, in turn, will draw for­eign in­vestors in­ter­ested to in­vest in lo­cal firms with po­ten­tial, said Dr Maung Maung Lay, deputy chair of the Union of Myan­mar Fed­er­a­tion of Cham­bers of Com­merce and In­dus­try.

“For there to be loans with low in­ter­est rates, the CBM needs to put out con­ve­nient poli­cies for the lo­cal banks. But now, as the lo­cal in­fla­tion rate has to be con­sid­ered, in­ter­est rates can­not be low­ered. As this is a sit­u­a­tion which the banks alone can­not be han­dling, the gov­ern­ment needs to pro­vide as­sis­tance, for ex­am­ple, by deep­en­ing the cap­i­tal mar­kets and lib­er­al­is­ing the in­surance sec­tor,” said Dr Maung Maung Lay.

He added that for­eign banks in Myan­mar should also be al­lowed to ex­pand their ser­vices and fur­ther fi­nan­cial co­op­er­a­tion be­tween for­eign and lo­cal banks is needed to fa­cil­i­tate in­ter­na­tional trade.

Skills de­vel­op­ment For­eign em­ploy­ers of­ten com­plain about the shortage of skilled work­ers in Myan­mar. “For­eign em­ploy­ers are look­ing for em­ploy­ees who have ex­pe­ri­ence or train­ing in ar­eas such as ac­count­ing and fi­nance, as they are needed in ev­ery sec­tor of the econ­omy,” said U Aye Kyaw, founder and prin­ci­pal of the Myan­mar Lead­er­ship and Man­age­ment In­sti­tute, which pro­vides pro­fes­sional cer­ti­fi­ca­tions such as LCCI, CPA, ACCA and CIMA.

U Aye Kyaw added that one of the ba­sic re­quire­ments for for­eign com­pa­nies when em­ploy­ing lo­cal hires is pro­fes­sional cer­ti­fi­ca­tions from in­ter­na­tional in­sti­tutes. “The lack of such qual­i­fi­ca­tions is one of the main weak­nesses for lo­cal hires and among the con­cerns of for­eign in­vestors when they ex­pand in the coun­try,” he said.

For­eign com­pa­nies are also look­ing for em­ploy­ees equipped with man­age­ment skills such as plan­ning, or­gan­is­ing, di­rect­ing and con­trol­ling. Those who are trained in IT and com­mu­ni­ca­tions are also in de­mand, ac­cord­ing to Bil­lion Force Ser­vices Co Ltd.

“The abil­ity to read, write, speak and think in English is also a very im­por­tant re­quire­ment for for­eign em­ploy­ers,” said U Tin Ma Ma Soe, man­ag­ing direc­tor of Bil­lion Force Ser­vices Co. For its part, the gov­ern­ment ear­lier this year per­mit­ted for­eign­ers to make full cap­i­tal in­vest­ments in pri­vate schools in Myan­mar, which should nar­row the skills gap in help raise the num­ber of tal­ented lo­cal hires in de­mand by for­eign firms.

In March, the UMFCCI, Bri­tish Em­bassy in Yan­gon and UK Depart­ment for In­ter­na­tional Trade (DIT) or­gan­ised a Tech­ni­cal and Vo­ca­tional Ed­u­ca­tion and Train­ing (TVET) con­fer­ence to iden­tify and close the grow­ing mis­match be­tween grad­u­ate skills and mar­ket needs in the coun­try. TVET is pri­ori­tised by the ed­u­ca­tion min­istry’s Na­tional Ed­u­ca­tion Strate­gic Plan 2016-21.

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