Wed 18 Sep 2013
Filed under: Business / Trade,Opinion
Having laid its bait, Myanmar now has to wait for the fish to come and bite. But it could prove to be a long wait. While the easing of Western sanctions has made Myanmar the darling of foreign investors and business quarters have welcomed the passing of a new comprehensive foreign investment law last November, there are still too many hurdles to cross and loose ends to fix. Big investors might simply want to watch out for a while.
The new investment law offers a welcome mat and frees up quite a number of sectors, including energy, mining, forestry, oil and gas, real estate and construction, transport and logistics, and telecommunications. It allows overseas firms to wholly own their ventures, if they wish, or go into partnerships with local firms at whatever stake ratio is agreed between them. Land can be leased from the government or authorised owners for up to 50 years, extendable twice for 10 years each time. There will be tax holidays for the first five years and firm guarantees that no enterprise will be nationalised during the contract period. Manufacturing companies may be given a tax relief of up to 50 per cent from their export profits.
At the same time, a comprehensive national development plan is in the works setting out the government’s long-term goals till 2030. Japanese and Southeast Asian economists are helping out in preparing it, emphasising productivity, job creation, maintaining a free market and price stability, expanding foreign trade, and stimulating investment.
But the problem is everything has to start from scratch. Myanmar is the region’s most underdeveloped country as far as infrastructure is concerned. Roads are primitive, sea and airport capacities are inadequate, communication facilities are negligible, the financial system is patchy, less than 25 per cent of the country has access to electricity, and there’s an acute shortage of skilled manpower. Above all, there still isn’t a credible legal framework for business that poses a significant risk for potential investors.
But the flow has begun nonetheless and, as the Myanmar story spreads around the world, tourists show more interest in what has long been regarded as the world’s last unexplored frontier, and as the demand for facilities and services associated with development grows, business people have started looking in. Some are putting in the money to reap immediate benefits while some just want to secure their positions for the future.
According to official statistics, contracted foreign direct investment (FDI) in Myanmar since 1988 amounted to $42.12 billion till the end of March 2013, and the bulk of it, rightly, is marked for power generation. So far, the biggest commitment, $15 billion, is from China, with Thailand coming next with $10 billion. Following them are Hong Kong, South Korea, the UK, and Singapore. Malaysia and Vietnam aren’t very far behind.
Though not in the top FDI bracket yet, Japan, a key donor, has been preparing the ground very carefully and making its presence felt in many different ways. Last May, Japanese Prime Minister Shinzo Abe went to Myanmar – the first Japanese leader to visit the country in 37 years – to announce a total waiver of all Myanmar’s past loans and offer a new loan of $504 million to help develop its infrastructure.
While China and Thailand are heavily involved in power generation (both hydro and thermal), Japan and Thailand are helping out in the development of special economic zones – at Dawei in the southern Tanintharyi region on the Andaman Sea and at Thilawa in suburban Yangon – and Singapore is pushing strongly into building tourism and hospitality infrastructure in view of the growing international interest in Myanmar. Japan is also getting increasingly involved in the modernisation of Myanmar’s financial services, including setting up a central bank information system.
With tourist arrivals expected to rise from about 2 million a year currently to 7 million by 2020, a new international airport is to be built at Hanthawaddy, some 80 km northeast of Yangon, by South Korea’s Incheon International Airport Corporation. When completed by 2018, it will be able to handle up to 12 million passengers a year. At the same time, Malaysian and Singaporean companies are part of a consortium that’ll be overhauling and expanding Yangon International, Myanmar’s main airport that can handle only about 2.7 million passengers a year, while Mitsubishi Corporation and Japan Airlines are involved in another contract to redevelop and operate the airport that serves Mandalay, Myanmar’s second biggest city.
The recent opening of a Singapore Overseas Centre in Yangon reflects a desire on the part of Singaporean companies to work together to offer Myanmar a complete value chain of solutions. Like Thailand and Malaysia, Singapore enjoys a natural advantage in Myanmar’s development, being an influential partner of the Association of Southeast Asian Nations common market that’s due to come into being in 2015 and from which Myanmar very much wants to benefit.