Apr 19, 2015

FDI target set at $6 billion for fiscal 2015-16

Myanmar has set a modest target of attracting US$6 billion in foreign direct investment (FDI) in the current fiscal year, with strong optimism that the target would be surpassed as in the previous year.
"This is our initial target," Aung Naing Oo, director-general of the Directorate of Investment and Company Administration and secretary-general of the Myanmar Investment Commission (MIC), said.

"Last year, we had initially set the target at $4 billion. We later increased it to $5 billion and ended up with $8.01 billion," he said in a telephone interview.

In the past three fiscal years, FDI into Myanmar has beaten its targets. In fiscal 2012-13, Myanmar expected to receive $1 billion in FDI but actually attracted $3.42 billion. In fiscal 2013-14, the targeted amount was $3 billion but the actual amount received was $4.11 billion. In comparison, FDI amounted to only $329.6 million in fiscal 2009-10.

Foreign investors have spotted huge untapped opportunities in Myanmar, which adopted democracy in 2011 after being ruled by the military for many decades.

Foreign investment in Myanmar has continuously increased over the last four years, as foreign investors are permitted to lease state-owned land in addition to private property, to transfer ownership of businesses to foreigners under the guidance of the MIC and to transfer money with fewer restrictions. The MIC has allowed investments from 77 local and foreign firms to invest in various sectors, including oil and gas exploration, commodity goods production and hospitality in the first quarter of this year.

Aung Naing Oo said that the FDI target was set in line with the government's 20- year FDI Promotion Plan.

"It is hard to increase the target very sharply, as we need to be in line with the master plan. But since the opening up of the economy, it has been very easy to achieve the targets and sometimes we receive more than twice the anticipated amount. We are very optimistic about this year. I guess it will be easier to receive more," he said.

According to the DICA chief, the manufacturing sector may lead this year's FDI inflows into Myanmar followed by the oil and gas and services sectors. He expects a sharp increase in Japanese investments, thanks to the development of the Thilawa Special Economic Zone, while Singapore, Hong Kong and China are likely to maintain their high rankings in the list of top investors.

Bright outlook

Aung Naing Oo said that investments from European countries would likely surge next year if the EU-Myanmar Investment Protection Agreement could be signed later this year.

"The discussions for the agreement are ongoing and fruitful. If we manage to sign it this year, we will receive lots of EU investment in 2016. The possible inflow of EU investment in the last three months of the fiscal year [January-March] will have a huge impact on our FDI figures," he said.

On the Asean side, he expected to receive more investments from Malaysia and Thailand. The newly opened economy may welcome more Thai investors, as the neighbouring country's outbound investment strategy focuses mainly on Myanmar and the Philippines, he said.

In the 2014-15 fiscal year ending March 31, Myanmar allowed 211 foreign enterprises to invest $8.01 billion in the country. Among them, 141 firms will invest in the manufacturing sector followed by 26 new entrants in the oil and gas sector, 8 in transport and communications, 6 in real estate, 5 each in livestock & fisheries and hotels and tourism respectively, 4 in agri-business and one each in mining and power. Other services welcomed 14 newcomers.

In terms of approved amounts, the oil and gas industry is the biggest with $3.22 billion, followed by transport and communications ($1.68 billion) and manufacturing ($1.5 billion). The real-estate sector got $780.75 million new investment and the hotels and tourism sector received $357.95 million, marginally more than those in other services ($357.32 million). Myanmar also approved $40.11-million investment from the sole newcomer in the power sector, $39.67 million in agriculture, $26.86 million in livestock and fisheries, and $6.26 million in mining.

Twenty-seven countries were given the green light to do business in the country last year. Singapore topped the foreign investors' list with 43 new entrants having approved capital of $4.3 billion, followed by the United Kingdom (13 firms to invest $850.76 million), Hong Kong (28 firms, $625.56 million), China (34 firms, $516.9 million) and the Netherlands (4 firms, $302.41 million).

The remaining countries in the top 10 investors' list are South Korea (24 firms, $299.59), India (6 firms, $208.89 million), Vietnam (1 firm, $175.4 million), Thailand (11 firms, $165.68 million), and Canada (2 firms, $153.92 million). Japan was the 11th-largest investor with 16 firms to invest $85.740.

Twenty-five firms from seven European countries - the UK, the Netherlands, Sweden, Switzerland, France, Norway, and Germany - were allowed entry in Myanmar. But their total approved amount was only $1.28 billion.

Bumpy track records

Myanmar’s Foreign Investment Law was first enacted in 1988 when it started to adopt a market-oriented economic policy. The law won positive response from foreign investors in the early years.

Yet, the FDI inflow dramatically reduced during 1997-2004. In 2005, a historical record was achieved with approved investment of $6.03 billion, thanks mainly to Thailand’s investment in the energy sector.

Since foreign investment returned to the country, the energy sector which comprises oil and gas and hydropower has been the main contributor to the increase in FDI and expected to be in the future. Following the enactment of the new Foreign Investment Law in 2012, FDI inflow resumed and the energy sector has remained the most important magnet.

Since the 1988-89 fiscal year, statistics showed that Myanmar has approved 895 firms from 38 countries to invest $54.24 billion in Myanmar.

Of 12 sectors in their radar, the power sector covering electricity generating has attracted the approved investment of $19.32 billion or 35.63 per cent of aggregate FDI as of March 31, 2015. This was followed by the oil and gas sector which won the approved investment of $17.59 billion or 32.44 per cent; manufacturing, $5.49 billion or 10.12 per cent; transport and communications, $3.18 billion or 5.87 per cent; and mining $2.87 billion or 5.29 per cent.

Ease of regulations

According to the World Bank's Myanmar Investment Climate Assessment Report released last month, the time taken to get an operating licence and very high minimum capital requirements are major constraints for foreign investors.

The paid-up capital required was $50,000 for services companies, while for infrastructure and manufacturing companies it was $150,000. This is in stark contrast to 90 economies globally that have no paid-up minimum capital requirement at all, according to Doing Business data.

The report also said that about 69 per cent of firms reported having applied for an operating licence, a number that is similar to other countries. However, on average firms have to wait 27 days for an operating licence in Myanmar, while in Indonesia the wait is 21 days, and only 11 days in the Philippines. With 27 days waiting time to get an operating licence, firms in Myanmar face the longest wait among Asean countries.

Aung Naing Oo, however, insisted that Myanmar is making efforts to create a more-enabling business environment by easing the restrictions. He said the MIC is currently reviewing all the rules and regulations and will soon issue a more attractive announcement for foreign investors.

On the operating licence, he said, "There will no longer be a long waiting period. We are now issuing licences to any foreign businesses within three days."

Reform pace

Domestic issues ranging from the nationwide ceasefire agreement, the first democratic election later this year as well as criticisms on human rights violations, foreign investors have been impressed with Myanmar's efforts in liberalising its economy. All foreign investors, particularly those from other Asean countries which control nearly half of the aggregate FDI, expect this momentum to continue.

In an interview with the Straits Times on the sidelines of the Asean-Myanmar Forum last montn, Sarasin Viraphol, executive vice-president of Charoen Pokphand Group, said that Myanmar’s economic liberalisation is too established and too attractive to stop despite the fraught political environment. The agri-business conglomerate has been operating in Myanmar for close to 20 years and is on the cusp of major expansion.

"No matter what happens on the political front or the international front, we can only see further development as the society, the people, move forward. We believe that the momentum will accelerate," said Sarasin.

Reflecting this is Myanmar’s attempt to enact a new investment law, potentially next year.

While forecasting that Myanmar's economic growth rate would exceed 8 per cent annually in the next few years, Asian Development Bank praised the ongoing economic reforms. Myanmar’s structural reform programme has underpinned strong growth in recent years, which will continue this year, it said.

ADB’s Myanmar specialist Peter Brimble shared the foreign investors' optimism.

"We hope that the reform momentum does not slow down too much in the lead-up to those elections," he said at a press conference in Yangon.

Source: The Nation