Among its provisions, the Myanmar Sustainable Development Plan (MSDP) 2018-30 – the country’s long-term development strategy – highlights the need for major reforms in the way the nation trades. Noting that years of isolation from the international community has led to a deterioration in the country’s trading capacity, the MSDP outlines a plan to boost exports and facilitate investment flows. The MSDP states that, “Myanmar will review its institutional and legal framework governing domestic and international trade, and pursue a range of policies to facilitate trade and to diversify its exports.”
Notable progress has already been made towards reaching this goal. In 2019 the government announced the creation of its online Project Bank (PB), which aims to change the way that infrastructure projects are funded and managed. In addition, the authorities have expressed their intention to use public-private partnerships (PPPs) for future development projects. These moves fall in line with the revised Myanmar Investment Promotion Plan (MIPP) that runs from FY 2016/17 to FY 2035/36, which outlines strategies to boost local and foreign direct investment (FDI).
The MIPP sets out with the goal of promoting dynamic and harmonious growth, with the ultimate objective of making Myanmar a middle-income country by 2030. Targets have been set, with private FDI forecast at an annual average of $8.1bn for the years from FY 2016/17 to FY 2020/21. This figure then rises gradually to reach $24.7bn by the final five years of the plan. In order to meet these targets, the plan identifies five main bottlenecks that need to be overcome: constraints in investment-related policies and regulations; institutional development; infrastructure development; business-related systems; and local industries and human resources.
Regarding the first bottleneck, the MIPP emphasises the importance of liberalising investment rules, coordinating policy across the various authorities, preparing legal frameworks for deregulation, creating incentive schemes for the development of targeted industries, and building capacity at both the macroeconomic and policy-making level. For the second point, the national plan highlights the need to advance investor protection, enhance one-stop shop services, and provide systematic investor support through the Department of Investment and Company Administration (DICA) and other entities. The strategy also advocates for the establishment of an independent investment promotion agency, which would boost local and international confidence in Myanmar as an investment destination.
On the third point, the MIPP outlines the promotion of special economic zones (SEZs), improved infrastructure planning and greater use of PPPs, along with a PPP master plan. On the fourth, strengthening intellectual property rights and financial sector capacity are prioritised in the MIPP, along with improving access to finance, particularly for small and medium-sized enterprises. To tackle the fifth bottleneck, the plan aims to improve industrial linkages, provide entrepreneurial support and develop the country’s human resources.
Hits & Misses
Three years into the MIPP, the scorecard on how these efforts are progressing has been mixed. In terms of FDI, figures had been hitting record numbers when the targets were set. In 2015 FDI stood at $9.5bn, up from $8bn in 2014. Since then, however, the annual average has been declining rather than accelerating, totalling $5.7bn in 2017 and $3.6bn in 2018. This was largely due to external factors and international perception of domestic unrest (see overview), which lie outside the purview of MIPP planners.
In investment-related policies, liberalisation has been moving forward, if at a slightly slower pace than the plan originally envisaged. In financial services, five foreign insurers have been licensed to open fully owned subsidiaries, while another six have bought into joint ventures with locals via 35% stakes. Furthermore, foreign banks can now open subsidiaries as well and will be able to operate retail services from the start of 2021.
In addition, DICA and the Myanmar Investment Commission have been forging ahead with efforts to promote Myanmar as an investment destination, and the country’s three SEZs have been a key part of this. For example, a number of advancements have been made at Thilawa SEZ, such as the establishment of one-stop service centres to connect domestic gold traders with international markets. By September 2019 the Thilawa SEZ had received $1.85bn of investment that year. At the Dawei SEZ, meanwhile, the electricity grid is continuing to be rolled out and development work is under way on highways that will connect the zone with Thailand. The third SEZ, Kyaukphyu SEZ, has memoranda of understanding for the development of a deepwater port and transport connections with the north as part of the China-Myanmar Economic Corridor.
January 2019 saw the government launch the PB, an online service featuring priority infrastructure projects approved by the government for investment. Selected projects are in line with the MSDP, with the PB acting as a centralised display for them, making their details publicly accessible and boosting coordination between ministries and agencies, as well as increasing the level of transparency in the tendering process. To apply to the PB, projects must acquire more than MMR2bn ($1.3m) of investment, undergo a pre-screening during which they have to provide a rationale and strategic case, and demonstrate strong accountability and sustainability.
The PB is based on the idea of market-driven development, with private investment and PPPs promoted as ways to ease the fiscal burden on the government for major infrastructure projects. This is an important shift in approach for the country, as Myanmar has a relatively low stock of public capital per capita, sitting at $2600, according to the IMF, compared to $3400 in Vietnam and $13,000 in Thailand.
At the announcement of the PB, the authorities also stated that a centralised government unit would be created to supervise PPPs. Such a unit has now been established at the Ministry of Planning, Finance and Industry. This unit is set to take on a more active role in the future to ensure that PPPs meet MSDP requirements and receive the necessary state guarantees for large projects to be attractive to investors.
As of November 2019 the authorities had yet to enact a specific law for PPPs at either the national or local level, although certain laws already have implications for PPP projects. One of these is the Arbitration Law of 2016, which brought the country into line with the globally recognised 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards. Joint projects between the private sector and government entities have long occurred, however. For example, the Yadana gas pipeline, which was completed in 1995, was 59% private, with Total and Unocal involved. Many other PPP and joint venture projects – mainly in the oil and gas and power sectors – have been carried out since. One of the most successful PPPs has been the Thilawa SEZ.
In July 2018 a proposed law on public procurement and asset disposal was published, outlining rules for government entities on these processes. For instance, it puts forth a method of tendering that requires a request for proposals and allows for flexibility on the financial value of a project before open bidding. The law would also hold greater legal power than the existing ad hoc directives from the government. However, the procurement law had not yet been passed as of November 2019. “Up until now, while the PPP model has been a very popular idea – particularly build-operate-transfer contracts, which work well with small-scale infrastructure – it has so far been trial and error,” Yin Mon Vanessa Han, head of insights and analytics at Yoma Strategic Holdings, told OBG. “We will see how this plays out in the longer term.”
Several major projects are already being touted as prospective PPPs. At the January 2019 Invest Myanmar Summit in Yangon, some 30 projects were presented, ranging from river ports and railways, to expressways and renewable energy plants. In addition, the Ministry of Construction has placed the Yangon inner and outer ring road sections of the Yangon Elevated Expressway project with the PB. These projects are planned to begin by the close of 2020.
PPPs are, of course, no guarantee that Myanmar’s infrastructure needs will be rapidly and efficiently met; success will strongly depend on the right selection of projects and comprehensive evaluations of the costs and benefits for the economy, society and the environment. The PB should, however, help bring greater transparency to the process of tendering and bidding, particularly if it enforces greater use of standard contracts, public scrutiny of existing procedures and an end to the large number of unsolicited proposals that are currently sent to individual ministries and local authorities, as these are often dealt with in an ad hoc manner. Furthermore, potential investors will require a standard legal framework for PPPs, especially given the size and importance of infrastructure projects.
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