Myanmar urged to prioritise long list of reforms

In its 2015 Investment Climate report, the government’s limited capacity was highlighted. Myanmar is urged to prioritise its long list of desired reforms, to focus on matters that concern foreign investors the most.

The department also said Myanmar has many laws and regulations that are outdated and inadequate. Investor protection and the criteria for foreign investment are not well-defined, and, in addition to weak rule of law, there are no proper mechanisms or instruments for enforcing contracts and property rights and for settling disputes.

“Despite the reforms undertaken and improving economic indicators, the government has more work to do in order to create the foundation for a healthy investment environment that contributes to economic development and attracts foreign interest,” it said. “The government’s efforts to date indicate tentative progress toward the goal of a sound investment framework but investors should come in with “eyes wide open”.”

In the report, it noted that a lack of reliable data and information adds to the frustration that many foreign investors experience when attempting to look up market and consumer base information, as well as capital and financial indicators. Investment approval procedures are not transparent, overly bureaucratic and complex and exclude foreign participation in certain sectors.

Referring to the World Bank’s 2014 Enterprise Services Report, it said reforms to improve the investment climate are urgently needed across a number of areas, especially in access to finance, land, electricity and skilled workers, which were identified as the top constraints. In addition, private firms also indicate that the incidence of corruption as measured by bribe payments is one of the highest in the region. Addressing these key constraints is critical to ensuring a fair and transparent business environment in which all private enterprises can grow and create jobs.

The department also expressed concerns on the Myanmar Investment Commission (MIC)’s function.

The MIC plays a leading role in the regulation of foreign investment, and approves all investment projects receiving incentives except those in special economic zones which are handled by the Central Working Body set up under the existing Special Economic Zone Law and joint ventures between foreign investors and state-owned economic enterprises which are the responsibility of the relevant line ministries.

“This level of discretion allowed to the MIC is concerning,” it said.

Citing a note in the 2014 report by the OECD, it said the system gives the government flexibility “to open progressively and selectively to foreign investment and to try to maximise the potential benefits from that investment,” the same flexibility also creates uncertainty for investors “concerning the criteria upon which the decision to admit them is based and creates opportunities for corruption when individual officials are given responsibility for deciding on what basis to admit an investment project”.

Moving forward, observers expect the manufacturing and tourism services sectors to continue growing and attracting more FDI, given Burma’s re-entry into the global economy and the removal of the majority of sanctions by Western countries. Conversely, observers suggest that political uncertainty and the rising influence of civil society may temporarily have halted or deterred new large-scale investments in the power and mining sectors.

The US government has eased almost all of its economic sanctions on the country, allowing the return of foreign investment. Since 2012, Myanmar products can be exported to the US.

It noted that the reduced sanctions, combined with Myanmar’s move toward economic liberalisation and a favourable external environment, have brightened Myanmar’s macroeconomic outlook. Real GDP growth rose from 7.3 per cent in the 2012-2013 fiscal year to 8.3 per cent the 2013-2014 fiscal year, led by strong performances in the construction, manufacturing and services sectors.

Growth is expected to decelerate slightly due to slower growth in the agricultural sector. Inflation is expected to pick up to around 6 per cent year on year from the 2014-2015 fiscal year from 5.8 per cent in the 2013-2014 fiscal year, due in part to increases in food prices and higher electricity tariffs.