Bagon, Myanmar

2010 was a record year for Foreign Direct Investment (FDI) to Myanmar that saw almost US$20 billion pour into the country. With 85 per cent of this investment in natural resources, and only 15pc allocated to the manufacturing and service industries, the Ministry of National Planning and Economic Development stated on Spetember 29 that it hopes to encourage more FDI to manufacturing and service sectors.

“About 85pc of investment in our country is based on resources, so we have to try to progress to other sectors such as manufacturing and services,” said U Aung Naing Oo the deputy director of National Planning.
This official position echoes warnings from analysts who say that reliance on natural resources can prove detrimental for the economy as a whole.

“[Investment in Myanmar] is based on natural resources and the environment, that’s not good for the long term obviously, they do not encourage development of the economy,” said economist U Han Htun who is also a columnist with Commerce Journal.

At present, the majority of this investment in Myanmar comes from neighbouring countries and offers little in terms of technology transfer or job opportunities, with some investors bringing their own workers, even unskilled labours, he said. An official of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) told The Myanmar Times that FDI is important to develop over the long-term, that the government needs to encourage investment into manufacturing to bring greater technology and job opportunities.

The $20 billion in 2010 proved the exception to the mere millions of previous years; 2009-10 reached $329 million, while 2008-09 was $984 million, according to Central Statistical Organization (CSO) figures.
However, the unprecedented levels of FDI in 2010 does not necessarily represent a trend.

“The $20 billion in FDI last year reflected primarily a handful of megaprojects in the field of hydro- power. These are one-off projects unlikely to be repeated. Not in any sense a typical year,” Derek Tonkin, chairman of Network Myanmar and former British Ambassador to Thailand, told The Myanmar Times.

Instead, the government needs to be more active in promoting FDI to help develop the economy as it seeks to integrate regionally and internationally, he said. “Myanmar has to compete with other investment destinations. It has some advantages over other ASEAN countries, but the main disincentive remains an unattractive investment environment which will not be resolved until there are substantial structural reforms.”

The situation is still preoccupied with longstanding issues that have distracted from the need to focus on development. “Myanmar should already be competitive in basic industries like garments and footwear. But US sanctions, especially restrictions on the use of US dollars, need early resolution. Even so, Vietnam enjoyed several years of good growth in foreign investment even while US$ sanctions remained, until full normalisation of relations in July 1995.”

Nevertheless, despite the fact that the Myanmar Investment Commission (MIC) has reported meeting foreign investors in various sectors a total of 24 times between July and September 2011, FDI slumped to a mere $14.5 million in the first three months of the 2011 fiscal year, according to CSO figures.

Foreign investors are anticipating reforms to the foreign investment law to allow buying land as well as foreign currency account transfers, according to U Aung Naing Oo. Once these are finalised, he said, the Ministry for National Planning expects more FDI to come to Myanmar.

But with the recent presidential decision to suspend the Chinese funded Myitsone Dam project in Kachin state, there are fears this could have an impact on potential future investments.
“I doubt that the suspension will impact detrimentally on foreign investment generally,” said Mr Tonkin.
“What Myanmar needs are scores of small-to-medium sized manufacturing projects in the region of US$ 1 – 10 million rather than a handful of megaprojects which have a habit of running into problems which are difficult to resolve,” he said.

Nevertheless, the Ministry of Energy continues to invite foreign investment in oil and gas, with 18 onshore oilfields offered in July. “If we search onshore oilfields ourselves we have to invest hundreds of millions and require specific technology,” the Ministry of Energy Union Minister U Than Htay told local media.
“So we have to think, should we import oil for many years or invite investors with our agreement. The government allowed us, so we corporate with them,” he said.

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