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.
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.