The government in Myanmar is ratcheting up its efforts to ready the country for a major influx of investors, as it continues making the transition to democracy.
Myanmar’s decision to open up its economy has generated significant interest globally, with figures indicating that the country is on course to benefit from around $3bn in foreign direct investment (FDI) this year.
However, the pressure is on to provide investors with the business-friendly environment they require, prompting questions about whether the country has the capabilities to roll out a highly ambitious reform programme within a short space of time.
Aware that the challenges it faces are considerable, Myanmar’s government is working at a fast pace, passing a number of new laws and introducing key action plans, with more than 700 bills lined up to help steer through its reforms.
Spotlight on FDI
In September, senior officials from the Directorate of Investment and Company Administration (DICA) said inbound FDI reached $1.8bn for the period April to August 2013, already a marked increase on the$1.4bn recorded for the full fiscal year 2011/2012. The figure excludes funds relating to a major hydro dam project, which has since been suspended.
Myanmar recorded just $300m of investment in 2011 before the political shift, putting the country’s estimated FDI compound annual growth rate over the past three years at 316%, according to officials.
“Before 2011 we had perhaps only one to two foreign investor groups per month coming to investigate the country,” said Aung Naing Oo, director-general of DICA. “Now we have six to eight per day.”
Law and order
A move to update Myanmar’s Foreign Investment Law in early 2013 was a key factor in generating further investor interest, providing prospective businesses with a gateway to the market.
A vast amount of legislation is now set to follow. “We have been told there are 743 bills meant to be passed this coming session,” said Doan Nguyen Hansen, principal and co-author of the McKinsey & Company Myanmar guide, speaking at an investment conference held in September in Naypyidaw. “The government has a blank sheet and needs to do everything from scratch.”
A Condominium Law, which will allow foreigners to buy property, features among the new bills scheduled to be put forward at Myanmar’s next parliamentary session in October. The government also plans to introduce a Financial Institutions Law, which should further define the position of banks and other lending institutions now that the Central Bank of Myanmar has been given independence.
With such a vast reform programme on the horizon, investors face an uphill task in keeping informed of changes to the legal framework. However, a broad range of international organisations, ranging from NGOs to law firms, are moving into position to help plug the information gap and service private enterprises.
Pressure from all sides
The fast pace of change in Myanmar, alongside an information overload, also throws up challenges for the government as it navigates its path towards democracy.
“We were told that Myanmar can learn a lot as a late-comer,” said U Set Aung, Vice Governor of the Central Bank of Myanmar, “but there are conflicting opinions. International finance organisations warn of moving too fast while some private investors are pushing to open up faster. We must be careful whom to listen to.”
Some investors, meanwhile, have yet to be convinced about the state’s ability to maintain the tempo of reform, given its heavy workload and under-staffed, under-budgeted public sector.
A need to prioritise is likely to see the government focusing first on the energy sector. Myanmar will be keen to bring an end to its routine blackouts, which regularly hit both rural areas and major cities, leaving some industrial operations relying on diesel-fuelled generators. Undercapitalised and outdated banks also give cause for concern, while real estate prices, which sit at an all-time high, have made some start-ups unfeasible.
International investors will continue to push for stability and reform in Myanmar over the coming years. However, with the an ambitious trajectory set, and legislative changes in the pipeline, the number of investors keen to participate in the growth story looks set to multiply.
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