Booming BurmaSubmitted by prachatai on Sun, 15/04/2012 - 15:30
“More companies have been registered in Myanmar in the past six months than the previous decade combined,” revealed, on separate occasion, directors of two market research firms in Rangoon. Since 2010, Burma recorded big jumps in its foreign investment stock, bringing in nearly US$25 billion, which account for more than all investment in the previous two decades. While the number of enterprises permitted to invest still remains low, a mere fifteen in 2011, the trend indicates both growth in volume and number. In addition FDI source country is diversifying, with non-Asian countries taking greater interest in Burma2.
On a fact finding mission for several potential foreign investors eager to invest in Burma – the fourth one he’s done in the span of three months - Michael retells an account of a country he thought he knew3. “Foreign companies are preparing to enter the Burmese markets. They felt the economy is truly opening up and there are so many investment opportunities.” Thinn Htut Thidar, CEO of Universal Link Services Co., Ltd. – a Rangoon-based investment consultancy, echoes such optimism: “Myanmar is the last resourceful investment destination in the South East Asian Region and the country’s political and economic reforms have been attractive to investors.” 4
Figure 1: Foreign Investment in Burma, 2007-2011
|FDI (US$ Million)||205.7||984.8||329.6||15903.3||8464.8|
|No. of enterprises||7||5||7||12||15|
|FDI Sectors||Mining, Oil & Gas, Power|
|Major Investing Countries||China, Hong Kong, Korea, Thailand, Singapore|
Source: Central Statistical Organization, Ministry of National Planning and Economic Development (Burma)
Burma is attractive to foreign investors for its rich natural resources and cheap labor. William Tan, Singapore-based Pte Ltd. Managing Director, who has advised many foreign companies on investing in Myanmar for 17 years, says companies are searching for a less expensive location to expand or relocate their production base. "Myanmar is one of the options manufacturers are considering,” argues Tan.5 Philex Mining Corp., Philippines’ largest gold mining company, is excited by the new opportunities: “Myanmar is opening up and a lot of businesses are really looking at that country. We do not want to be left behind,” says the CEO. US has also released a website “Doing Business in Burma: 2012 Country Commercial Guide for US Companies” that provides an analysis of market opportunities and challenges for interested investors.6
Figure 2: Key Foreign Investment-Related Proposed Reforms7
|Currency (kyat)||Managed float to improve efficiency and reduce corruption; harmonize currency value with black market|
|Enterprise ownership||Up to 100% foreign
Joint-Ventures, at least 35% foreign
|Land Leasing||Up to 30 years for foreigners with possible extensions|
|Employment of locals||25% of skilled local workers employed after five years then increased to 75% after fifteen years; all unskilled workers employed must be citizens of Burma|
|Manufactured goods||No longer for exports only|
|Labor unions||Will be allowed|
|Labor strikes||Will be allowed|
|Taxation||Tax holiday for first 5 years; additional tax relief available|
Source: Myanmar Times, Reuters
The IMF, who has been aiding Burma in its exchange rate harmonization, was upbeat about the country’s progressive direction. “Myanmar’s real GDP growth is expected to increase to 5.5% in 2012 and 6% in 2013, driven by commodity exports and higher investment supported by robust credit growth and improved business confidence.”8 Likewise, Maplecroft, a UK-based risk analysis firm, determines that 2012 is the year most Western nations will start untangling their overlapping layers of sanctions.
Political reforms, not economic, make the government’s commitment towards greater liberalization more credible. While several of the 1988 foreign investment laws have long been pro-business, at least on paper9, foreigners just couldn’t take the junta’s word for it. The tipping point came earlier this year after a series of high-profile visits by world leaders, and Daw Aung San Suu Kyi’s landslide victory in a by-election. The response from the West was positive and immediate. The US, the European Union and Australia, for example, began to ease some of the sanctions and establish greater diplomatic ties with Rangoon. The Japanese have also given Thein Sein a promise of new loans for development assistance.10
Locals are buying up properties, particularly condominiums, in the capital in anticipation for greater influx of foreign investors. U Than Oo, managing director of Mundine real estate agency in Kyauktada township, told Myanmar Times: “We are seeing strong sales interest in most high-end areas in Yangon…It seems evident that many of the deals are for properties to be used as company offices or businesses…[these] buyers are expecting foreign investment to arrive in the near future and are betting that more foreigners will want to stay in condominiums.”11
Potential pitfalls await foreign investors in Myanmar, however. Poor infrastructure, inadequate institutional capacity, low human capital and a lack of rule of law are causes for caution.12 International Financial Law Review (IFLR) also warns that the country's banking sector is not ready for an influx of foreign investment.13
But given the types of industry that will attract FDI, these shortcomings are unlikely to be insurmountable. As long as the government maintains its pro-investment environment and continues with the reforms, many interested investors will be undeterred.
1 The author chooses to use the country name Burma to maintain consistency, except for direct quotations.
2 Interview with Thinn Htut Tidar, CEO of Universal Links Services Myanmar, foreign investment consultancy (April 4, 2012).
3 Michael is a fictional name of a foreign consultant in Burma. Due to confidentiality agreement, his actual identity cannot be revealed.
4 Interview with Thinn Htut Tidar, April 4, 2012
6 This website is somewhat hidden within the export website for Thailand http://export.gov/thailand/build/groups/public/@eg_th/documents/webcontent/eg_th_046039.pdf
7 The new legislature has passed through parliament and is awaiting president’s approval.
8 IMF press release. http://www.imf.org/external/np/sec/pr/2012/pr1225.htm
9 The 1988 foreign investment law contains clauses such as no nationalization of foreign companies.
11 Myanmar Times. http://www.mmtimes.com/2012/business/619/biz61912.html
12 See detailed reports on this issue in the International Crisis Group, Reform in Myanmar: One Year On. http://www.crisisgroup.org/~/media/Files/asia/south-east-asia/burma-myanmar/b136-reform-in-myanmar-one-year-on.pdf?utm_source=myanmaremail&utm_medium=pdf&utm_campaign=mremail