Foreign ownership liberalisation should stimulate investment in Myanmar

Although Myanmar’s economy has grown above the regional average in 2018, a fall in overseas investment, crop losses and a weakening of the kyat have combined to slow the pace of economic growth. However, moves to open up sectors of the economy to foreign ownership may boost inward investment in the coming year. According to estimates by the Asian Development Bank released in September 2018, Myanmar’s economy was on track to expand by 6.6% in 2018, accelerating to 7% in 2019.

Despite being well above the bank’s regional average of 5.3%, this forecast is somewhat below earlier government estimates. In mid-October 2018 the central bank warned that growth would fall below the forecast 7.4% in FY 2018/19, citing constraints on spending. Inflation also began to edge up in the second half of 2018, fuelled in part by the weakening of the kyat, which by early December had dropped by around 11% year-to-date against the dollar. The fall in the kyat’s value affected import costs, pushing up the price of key products such as fuel by as much as 15%. These external pressures, in combination with weather-related crop damage that further impacted food prices, pushed inflation to 8.9% in October, well above the official year-end target of 6%.

Security Concerns

High inflation rates and fall in the value of the kyat coincided with a drop in foreign direct investment (FDI). In FY 2017/18 Myanmar attracted $5.7bn in FDI, down on the $6.6bn recorded the previous financial year. In the subsequent five months ending in August 2018 total FDI was just $1.4bn, pointing to a further deceleration of capital inflows. Government officials have cited ongoing security and humanitarian issues related to unrest in Rakhine State as a factor hindering investment, particularly from Western countries.

One sector that has been shaped by this cooling Western interest is tourism. Although the 2.84m international arrivals welcomed in the first 10 months of the year was 1.2% higher than the same period in 2017, according to Ministry of Hotels and Tourism figures, there was a sharp decline in the levels of tourists sourced from Western Europe and North America, which fell by 25.3% and 13.8%, respectively. However, this was offset by an increase in inbound traffic from Asia, with Thailand and China the top-two source countries (see Tourism chapter).

Promoting Investment

To counter the fall in FDI, the government undertook a series of measures in 2018 to encourage broader foreign participation across a range of different sectors. At the end of August the Ministry of Electricity and Energy announced it would open fresh rounds of bidding for oil and gas blocks in early 2019, with a total of 31 on- and offshore blocks to be offered (see Energy chapter). As an incentive for foreign firms, state-owned Myanma Oil and Gas Enterprise indicated that the requirement that overseas companies join forces with a local partner is to be lifted. This came amid indications that foreign insurers will be allowed to operate in Myanmar’s insurance industry in the new fiscal year, though details have yet to be confirmed.

New Banks

Meanwhile, in an effort to stimulate the financial services, in November 2018 the Central Bank of Myanmar (CBM) announced reforms allowing foreign banks to lend to local businesses. The CBM directive authorised the 13 overseas banks already licensed to operate in the market to offer credit to domestic companies in both local and foreign currencies. In the past, overseas banks were limited to offering loans in foreign currency to foreign firms.

The bank has also suggested it will give permission to more foreign banks to open branches. To help address hurdles to FDI and fast track local and overseas investment, the government established the Ministry of Investment and Foreign Economic Relations in November 2018, which is tasked with facilitating approval processes for foreign investors.

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The Report: Myanmar 2019

Trade & Investment chapter from The Report: Myanmar 2019

Cover of The Report: Myanmar 2019

The Report

This article is from the Trade & Investment chapter of The Report: Myanmar 2019. Explore other chapters from this report.