Myanmar taking steps for attracting investors
Myanmar is one of the lowest income countries among the Southeast Asian nations. The country is facing a slowdown in foreign investments caused by ongoing concerns about political instability, weak macroeconomics, investment restrictions and uncertain investment approval procedures. There is lack of investment promotion and infrastructure, and the financial sector and business regulatory systems are underdeveloped. In order to attract investments, the government has launched the Myanmar Investment Promotion Plan (MIPP), which outlines various strategies to boost economic growth. The MIPP spans 20 years from 2016-17 to 2035-36.
Objectives and targets of MIPP
The Myanmar Investment Commission (MIC), in October 2018, launched the MIPP, which was jointly formulated by the MIC and the Japan International Cooperation Agency (JICA). The government had formulated the Foreign Direct Investment Promotion Plan (FDIPP) in 2014. In October 2018, the FDIPP was reviewed after which it was updated and renamed MIPP.
The plan outlines five strategies to actively promote investments in the economy, including new policies and regulations, institutional development, infrastructure development, leveraging local business systems, industries and human resources. The government aims to realise the investments necessary for Myanmar to become a middle-income country by 2032 through the adoption of these strategies.
Taking the base case, the government projects the gross domestic product (GDP) to reach MMK 152,174 trillion during the 2021-26 phase, up from MMK 105,998 trillion in the 2016-21 phase. The GDP is further expected to increase from MMK 218,466 trillion in 2026-31 to MMK 313,636 trillion in 2031-36.
Push to foreign investments
Foreign direct investment (FDI) in Myanmar significantly declined from $9.5 billion in 2015-16 to $6.6 billion in 2016-17, after western investors became cautious and the country’s image was tarnished by the Rohingya crisis in Rakhine state. In an effort to counteract the significant decline in FDI over the last two years, the MIPP was formulated to attract over $200 billion through responsible and quality business over the next 20 years.
The MIPP has targeted attracting $8.5 billion in the first four-year phase starting from fiscal year 2021-22, $12.3 billion in the four-year phase of 2026-27 to 2030-31 and $17.6 billion in the third phase from the 2031-32 to 2035-36. An Investment Promotion Committee (IPC) will be established to facilitate the implementation of the plan.
Focus on infrastructure development
Insufficient infrastructure is one of the critical bottlenecks in Myanmar’s business environment. In particular, the current inadequate provision of electricity, transportation/logistics and industrial zones is a huge obstacle in attracting investment, especially in the manufacturing sector. The government has been making efforts to develop infrastructure based on national master plans such as the National Transport Development Plan and the Myanmar Energy Master Plan. It is imperative for investment promotion to prioritise infrastructure development projects.
Establishing industrial zones and SEZs
A key concern for the government is the insufficient availability of industrial zones with adequate infrastructure. Special purpose industrial zones such as agro-industry parks and economic zones are being developed. However, many industrial zones have problems with poor infrastructure, unused plots and irregular use of land. Therefore, investors have difficulty finding appropriate locations. In addition, the government’s planning and administration of industrial zones is complicated. An exception perhaps is the very successfully managed Thilawa special economic zone (SEZ). It has demonstrated how SEZs can attract both foreign and domestic investment, especially in new technology-intensive sectors. The key factors in the Thilawa SEZ’s success are good infrastructure, investor-oriented management, integrated investor support, transparent procedures and a flexible regulatory system.
The development of new industrial zones and SEZs needs to keep pace with the rate of industrial growth. A greater variety of special purpose industrial zones and incubation centres will be examined in relation to the needs of industrial and regional development. The government will also review and update industrial zone administration policies and formulate regulations for ensuring proper management of industrial zones.
The MIPP urges the government to formulate a national industrial allocation plan based on projected investment trends and the existing investment potential of regions. The national industrial allocation plan should include insights into future industrial linkage and agglomeration in Myanmar, and it should additionally be examined from the perspectives of urban development and economic corridor development.
Utilising PPPs for financing infrastructure projects
Government funds will continue to be the mainstay for infrastructure projects. However, due to tight budgetary conditions, it is important to consider the introduction of private investment for infrastructure development. Several public-private partnership (PPP) projects have been implemented in the country, particularly in the power and transportation sectors. However, Myanmar still remains at the early stage of PPP implementation compared with other ASEAN countries, in terms of the legal framework, implementation body, financial support and experience of PPP projects. The most suitable PPP models for Myanmar need to be identified, and the required laws and regulations introduced.
In the draft Myanmar PPP policy document, the establishment of a PPP committee, along with a PPP unit as the secretariat of the PPP committee, has been proposed. These organisations will be responsible for formulating a PPP master plan by revising the draft PPP policy document. Following the PPP master plan, the PPP committee will establish a business environment equipped for PPP projects, including the legal framework and a mechanism for PPP implementation. The PPP committee will also formulate a basic policy for central financial support schemes including viability gap funding and guarantees, in consultation with related ministries.
The MIPP envisages attracting over $200 billion worth FDI through lower entry barriers, more streamlined procedures, a dedicated mechanism to mediate investor disputes, and greater investment incentives. To successfully attract and maximise the impact of FDI, the government needs to raise awareness of the new regulations and build staff capacity at the regional level. Complementary reforms should also be accelerated to improve investors’ access to land, infrastructure, skilled labour and quality domestic inputs.