No democratic dividend for Myanmar’s frontier markets
Myanmar's transition from military to democratic rule was supposed to spark an FDI bonanza. Capital commitments to date have been a trickle not a flood
Myanmar’s elected government under de facto leader Aung San Suu Kyi is fast approaching its first anniversary in office on April 1, providing an opportunity to assess its overall economic performance. On the foreign direct investment front, the results have so far been mixed.
New FDI approvals recorded by the Myanmar Investment Commission reached US$3.5 billion for the period spanning April-December 2016, down 28% from the corresponding period a year earlier, which was under the previous quasi-civilian government led by Thein Sein. The commission says overall approvals for the full financial year could reach US$7 billion, which would still be down from the US$9.5 billion received the previous year.
For several reasons, a slowdown in FDI approvals was anticipated. Firstly, the economy slowed to 6.5% growth in 2016 compared with 7.3% in 2015, the World Bank estimates. Earnings from Myanmar’s main export, natural gas, were hit hard by a global decline in oil prices. Prices on rice and pulses were also weak last year. Nor have the country’s few export-oriented manufacturers benefitted much from a decline of about 13% by the kyat against the US dollar over the past four months.
Some analysts argue that all of the most profitable concessions and licenses, namely in energy and telecoms, have already been tendered. After European and US sanctions were eased on the country in 2012, around US$8 billion worth of oil and gas concessions were licensed off in 2014-2015 to a host of bidders including US and European multinationals, though they are expected to drag out exploration for as long as possible before committing to actual production.
Two mobile telephone operating licenses were granted to Qatari-based Ooredoo and Norway-based Telenor in 2013, both of which pledged to invest billions of US dollars on transponder towers and other infrastructure.
There has been little investment pledged in manufacturing, understandably given Myanmar’s poor infrastructure (only 25% of the population has access to electricity.) “What needs to come now is the FDI that is truly transformational of [Myanmar’s] economy, but this is harder to get,” acknowledged Sean Turnell, economics professor at Australia’s Macquarie University and an adviser to Suu Kyi’s government on economic policy.
Investor-friendly policies, however, have been slow in coming. “The government came in in April last year but they did not hit the ground running in terms of policies,” said Aung Htun, managing director for Myanmar Investments, a private investment company listed on the London Stock Exchange. “Even now the policies are not very clear,” he said, noting the lack of follow-up rules and regulations to the new investment law.
To its credit, the National League for Democracy-led government promulgated the new Myanmar Investment Law in October, which generally sets a more level playing field between local and foreign investors. The accompanying rules to the law were supposed to have been completed by year-end, but are now expected to be finalized next month, paving the way for the legislation to go into effect by April 1.
Some of the new pending FDI-related legislation, however, is far from FDI-friendly. For instance, two draft laws governing the employment of foreigners have sent shock waves through the expatriate community. One, which regulates non-Burmese holding Foreign Registration Certificates would require foreigners to inform local authorities whenever they leave or enter a city, a vestige of the restrictions imposed under military rule.
Those found travelling without the certificate could be sentenced to one year in jail, according to the legislation. “These are draconian even when compared with ASEAN,” said Eric Rose, a founding partner in Herzfeld Rubin Meyer & Rose Law Firm, the first US law firm established in Myanmar since 2013.
Rose has lobbied NLD legislators to amend the two laws before they are approved by parliament. He claims the NLD was unaware of their content as the laws were drafted by the Ministry of Immigration, one of four ministries still controlled by the military as stipulated by the 2008 Constitution. “These are not NLD policy,” Turnell said. “I suspect we will see significant modification of these laws.”
This raises questions of who exactly is running the economy and whether the military and their aligned business associates who have long dominated business in the country are as keen on foreign investment as the NLD
That may or may not be the case. Since coming to power last year, the NLD has failed to shuffle and reform the old bureaucracy, where the majority of bureaucrats were appointed by previous military regimes.
While recent military offensives against minority groups has spotlighted the NLD government’s lack of civilian control over security affairs, the NLD’s powerlessness to control civil servants in other ministries under the military and even those it nominally controls, as the two draft laws on foreign employment suggest, is now coming to light.
This raises questions of who exactly is running the economy and whether the military and their aligned business associates who have long dominated business in the country are as keen on foreign investment as the NLD.
“If you can’t trust your staff and the staff have a different agenda than the government agenda then this is a problem,” Rose said. “This government will stand in the corner of the investor. The problem remains the bureaucracy, because the bureaucracy is left over from the old government.”
Government adviser Turnell acknowledged that the uncertainty was a “concern,” but noted, “It takes more than a year to restructure a system built up over the 55 previous ones.”
Peter Janssen is a Bangkok-based journalist who has covered Laos, Myanmar and Thailand for the past 36 years.