i

ii

i

Acknowledgement

Firstly, we wish to express our gratitude to the Yangon University of Economics

for giving us the opportunity to do and encouragement to conduct this paper.

Our special thanks go to Associate Professor Daw Yi Yi Khin, our program

coordinator, who showed keen interest in this paper, provided professional guidance,

motherly concern, critical comments and valuable advice.

We are thankful to our supervisor, Daw Pwint Phyu Aung (Assistant Lecturer,

Department of Applied Economics, Yangon University of Economics) for her kind

supervision, persistent supports, and encouragement throughout this research study. We

found her insightful criticisms useful and valuable in completing this study paper.

Above all, we wish to thanks our beloved family and our friends for their support

and encouragement.

Last, but not least, we would like to express our gratitude to all those who

contributed their time, efforts, and expertise directly or indirectly to bring the study to

final completion.

ii

Abstract

Since the new government took office in March 2011, Myanmar has embarked on

a process of extensive political and economic reform. In recent years, the international

community has witnessed many positive changes in Myanmar, including greater space for

civil society, an expansion in freedom of expression, and evident government concern

about environmental and local livelihood issues resulting from large‐scale development

projects. With new foreign investment laws and the lifting of economic sanctions by

Western countries, Myanmar is opening rapidly to the global market economy. With the

country’s plentiful resources and the input of foreign investment, Myanmar is ready to

pursue economic growth under the name of “development”.

The objective of the study is to examine the role of Foreign Direct Investment

(FDI) and the situation of FDI flows in Myanmar. The study was based on secondary data

source of Myanmar over the period of 2000 to 2014. To achieve a step change in FDI and

get closer to meeting the economy’s large need for investment, as well as to continue to

diversify the sectors to which FDI goes, Myanmar needs to prioritize two main areas:

developing a targeted FDI strategy led by a high-performing agency and improving

Myanmar’s business environment.

In order to provide more specific guidance to potential foreign investors, some

types of activities have been specified as open to foreign investment. A foreign investor

may apply for and obtain a permit under the Foreign Investment Law for an economic

activity not so specified, provided the foreign investor can explain how the activity would

be mutually beneficial to Myanmar and the foreign investor.

iii

CONTENTS

Acknowledgement i

Abstract ii

Contents iii

List of Tables iv

List of Figures iv

Chapter (I) Introduction 1

1.1 Rationale of the Study 1

1.2 Objective of the Study 2

1.3 Method of Study 3

1.4 Scope and Limitation of the Study 3

1.5 Organization of the Study 3

Chapter (II) Importance of Foreign Direct Investment in Developing Countries 4

2.1 Definitions of Foreign Direct Investment 4

2.2 The Role of FDI into Developing Countries 5

2.3 FDI flows and FDI stocks 5

2.4 The Effect of FDI in host countries and home countries 5

2.5 Benefits and Costs of FDI to Home and Host Countries 8

Chapter (III) Foreign Direct Investment in Myanmar 10

3.1 Background of FDI in Myanmar 10

3.2 Direction of FDI in Myanmar 10

3.3 FDI inflows into Myanmar 11

3.4 Countries investing the most in Myanmar 13

3.5 Natural Resources and FDI in Myanmar 19

Chapter (IV) Barriers and Opportunities in Myanmar 25

4.1 Barriers in Administration and Policies 25

4.2 Barriers in Information, Infrastructure and Institution 26

4.3 Human Resource Barriers 28

4.4 Investment Opportunities in Resource Sectors 29

4.5 Opportunities in Manufacturing 31

Chapter (V) Conclusion 33

5.1 Findings 33

5.2 Suggestions 35

References 36

iv

List of Tables

Tables Page

1. Foreign Direct Investment in Myanmar by Country (2000 - 2014) 14

2. Approved Amount of Foreign Direct Investment by Sector (2003 - 2014) 15

3. Foreign Direct Investment in Myanmar by year (2000 - 2014) 18

List of Figures

Figures Page

1. Figure 1 : The pattern of FDI inflows into Myanmar (2000-2014) 11

2. Figure 2 : Trend of FDI to Myanmar (2000-2012) 12

3. Figure 3: Top Ten Countries Investing In Myanmar (2000-2014) 16

4. Figure 4: Composition of Foreign Direct Investment 17

5. Figure 5: Natural resources and economic zones 24

- 1 -

Chapter (1)

Introduction

1.1. Rationale of the study

Foreign Direct Investment has emerged as one of the most important sources of

external resource inflows and an engine for economic development in developing

countries over the 1990s and has become a significant part of capital formation in the

countries concerned. Moreover positive externalities such as vertical linkage and

technology spillovers are believed to stimulate growth in the host countries. Many policy

makers in developing countries are setting policies that try to attract FDI in the hope of

bringing about economic growth by maximizing technology spillovers which could help

in the formation of human capital which in turn could significantly contribute to growth.

In the late 1998, Myanmar changed its economy from centrally planned economic

system to market-oriented one. After transforming into market-oriented economy,

Myanmar made many economic reforms and also accepted foreign direct investment into

the country. According to the World Bank data source in 2012, the inflow of foreign

direct investment into the country is $ 2.2 billion. As a developing country, Myanmar

needs more foreign direct investment in order to develop the country's economy. The

government has been undertaking many efforts to create favorable investment

environment, aiming at achieving more employment opportunities, developing human

resources, and facilitating the economic growth of the country.

The government of the Republic of the Union of Myanmar has conducted a series

of political and economic reforms since 2011. The companies which had hesitated to

invest in Myanmar such as from EU, the United States, Japan and ASEAN have now

started to seek a way to invest in the country especially in the areas with minimal risk.

Many companies, however, have not changed their "wait and see" attitude and they have

yet to decide about to make a significant investment in Myanmar. Nevertheless, the

Myanmar government is making necessary preparations for attracting more foreign direct

investment (FDI).

- 2 -

A new Foreign Investment Law was signed on November 2, 2012 to create a more

favorable climate for foreign investors. The new law stipulates that foreign investments

can take place as sole ownership (100% stake), or a joint venture with local citizens,

government, or organizations. According to the law, foreign firms are required to operate

through forming joint venture with local investors in certain sectors.

The Union of the Myanmar has already involved in ASEAN Economic

Community (AEC) which purpose is to lower import duties among ASEAN countries

gradually and targeted will be zero for most of their import duties. And the government

has also made significant efforts such as in promotion and expansion of exports, in

reducing tariffs and other restrictions on trade. Further, the government has focused on

improving physical infrastructures, flexible domestic markets, fostering transparency and

stability in rules related with FDI, equal treatment for foreign and local firms,

administrative procedures and regulatory transparency directly linked to the trading

process.

FDI is very important for Myanmar since it needs foreign capital to generate

employment for its citizens, acquire technology know-how and accumulate foreign

exchange to implement development projects. Given the continuous decline in Overseas

Development Assistance and bank borrowings from international financial agencies as a

result of the economic sanctions that followed the military coup in 1988, FDI continues to

be a significant source of external finance for ensuring development, fulfilling investment

and narrowing development gaps between and within states and regions. It also helps

ensure the sustainability of the recovery process and industrial development in Myanmar.

FDI brings along with it not only capital flows that would contribute to the balance of

payments but also a package of other economic benefit such as employment

opportunities, export market expansion, technology and entrepreneurial skill

enhancement.

1.2. Objective of the Study

The objective of the study is to examine the role of Foreign Direct Investment

(FDI) and the situation of FDI flows in Myanmar.

- 3 -

1.3. Method of Study

This study is made on simple descriptive method with available statistical data and

secondary data sources collection from various reliable data sources. The main sources of

data are Statistical Year Book, April 2015 (Central Statistical Organization) published by

Ministry of National Planning and Economic Development, the Government of the

Republic of the Union of Myanmar, and Directorate of Investment and Company

Administration(DICA). The major online resources included Data from World Bank and

Directorate-General for Trade, European Commission, and ADB reports.

1.4. Scope and Limitation of the Study

This study is focused on foreign direct investment inflows in Myanmar. The study

will present on economic environment of Myanmar with the emphasis on factors such as

macroeconomic environment, infrastructural development and human resource

development and FDI accommodating institutions. The study was based on secondary

data source of Myanmar over the period of 2000 to 2014.

1.5. Organization of the Study

This study is organized into five chapters. Chapter (1) is the introduction of the

study which includes rationale, objective and method of the study together with scope and

limitation of the study. Chapter (2) includes Importance of Foreign Direct Investment in

developing that organized by Definition of Foreign Direct Investment, The Role of FDI

into Developing Countries, FDI flows and FDI stocks, The Effect of FDI in host countries

and home countries and Benefits and Costs of FDI to Home and Host Countries. And

Foreign Direct Investment in Myanmar will be included in Chapter (3). In chapter (4),

Barriers and Opportunities in Myanmar will be involved. And the last chapter (5)

attempts on drawing a conclusion by pointing out the findings which need to be addressed

in order to promote the FDI in the country.

- 4 -

Chapter (II)

Importance of Foreign Direct Investment in Developing Countries

2.1 Definitions of Foreign Direct Investment

Foreign direct investment (FDI) plays an extraordinary and growing role in global

business. It can provide a firm with new markets and marketing channels, cheaper

production facilities, access to new technology, products, skills and financing. For a host

country or the foreign firm which receives the investment, it can provide a source of new

technologies, capital, processes, products, organizational technologies and management

skills, and as such can provide a strong impetus to economic development. Foreign direct

investment, in its classic definition, is defined as a company from one country making a

physical investment into building a factory in another country. The direct investment in

buildings, machinery and equipment is in contrast with making a portfolio investment,

which is considered an indirect investment. In recent years, given rapid growth and

change in global investment patterns, the definition has been broadened to include the

acquisition of a lasting management interest in a company or enterprise outside the

investing firm’s home country.

The international Monetary Fund (1997) defines FDI as "an investment that is

made to acquire a lasting interest in an enterprise operating in an economy other than that

of the investor, the investor's purpose being to have an effective voice in the management

of the enterprise."

According to UNCTAD definition, FDI is defined as an investment involving

management control of a resident entity in one economy by an enterprise resident in

another country.

Agiomirganakis et al. (2003) defined FDI as the flow of capital resulting from the

behavior of multinational companies. So, the factors which affect the MNC's behavior

will also affect the direction and magnitude of FDI.

- 5 -

2.2 The Role of FDI into Developing Countries

FDI is very important for the development of a country, especially, for developing

economics. The experience of newly industrialized countries (NICs) shows that FDI had

played an important role in their economic development. In the age of globalization with

cross-border flow of capital among nations, FDI becomes a key solution to reducing

development gaps among nations. The rapid growth of multinational corporations

(MNCs) has become the major driver for the process of FDI because they are looking

everywhere in the globe as investment center.

The government had identified a number of potential investment opportunities for

foreign investors and has also embarked on a privatization program. A foreign investor

(whether investing through a joint venture or a 100 percent owned entity) manufacturing

goods or providing services in Myanmar under the Foreign Investment Law will be

granted an exemption from income tax for three consecutive years, inclusive of the year

of commencement.

2.3 FDI flows and FDI stocks

Whenever we talk about the international movement of “capital”, there are two

types of capital movements: foreign direct investment (FDI) and foreign portfolio

investment (FPI). Foreign direct investment (FDI) refers to a movement of capital that

involves ownership and control for foreign ownership of production facilities took place

(i.e. long-term capital stock). Foreign portfolio investment (FPI) is financial capital

because it does not involve ownership or control but the flow (i.e. not the stock and it is

short–term financial flow).

2.4 The Effect of FDI in host countries and home countries

The effects of foreign direct investment (FDI) on the home countries (the source

of FDI) of Multinational Corporations (MNCs) have become well-known in the

international debate during the past decade. After the completion of the Uruguay round,

global liberalization of trade and investment and the regional integration processes in

Europe, the Americas, and the Asia-Pacific region are important reasons for this

resurgence of interest. Because of the Asian crisis in 1997-1999, a global boom in FDI

that was temporarily interrupted by a reduction in investment flows.

- 6 -

The annual number of cross-border investments in Europe exceeds 10,000, and

both China and the US attract thousands of FDI projects every year. Inflows to Russia

have accelerated after the collapse of the Soviet Union. In recent years, India has become

an important destination for FDI, and several other Asian countries record substantial

inflows. Both West Asian and African countries can be found among the economies with

the fastest increases in inward FDI (UNCTAD 2006).

In contrast, several developing countries such as Brazil, China, India, South

Africa, and Malaysia in which local companies have created sufficient intangible assets to

become multinational. However, developing countries have been focused on the effects of

inward FDI and thus there is little evidence on how they are affected by outward

investment. There are possible differences in the home country effects of FDI in

developed economies and in that of developing countries.

The inward FDI in hosting countries stimulate employment, and investment, and

economic growth. However, one view is that outward FDI have negative effects on home

country’s growth when applying the same logic to home countries implies that the

outward FDI would damage growth of home countries by taking away investment,

employment and output production. This is the general concern of the public in home

countries. Horizontal and vertical types of outward FDI could promote economic growth

of home countries. While horizontal FDI is market seeking and substitutes host country's’

employment and output for home country, vertical FDI is cost minimizing and

complement host country’s employment and output for home country.

The general characteristics of host countries are considered by investors deciding

whether to undertake a project in any country and important attention is being paid to

political variables in addition to traditional economic variables. The particular host

country economic determinants of FDI are (i) market-seeking FDI (i.e. firms are

attempting to locate facilities near large markets for their goods and services), (ii)

resource-seeking and asset seeking FDI (i.e. firms are in searching of particular resources

or particular human skills), and (iii) efficiency seeking FDI (i.e. firms can sell their

products worldwide and are in searching of the location where production costs are the

lowest). Beyond economic factors, foreign firms considering investment in any given

country will also be influenced by various policies and attitudes of the host country’s

government (i.e. political situation of the host country).

- 7 -

Within host countries, foreign- owned firms almost always pay higher wages than

domestically- owned firms. It is not always the case that they cause wages in locally-

owned firms to rise, but their presence does generally raise wage levels in host countries.

The impact of FDI in promoting the growth of host country exports and linkages to the

outside world is clearer (i.e. host country effects of inward FDI). The major role of FDI in

the transformation of host economies from being exporters of raw materials and foods to

being relatively exporters of high- tech manufactures. Much of the impact is from the

transfer of knowledge of world markets and of ways of fitting into worldwide production

networks, not visible in standard productivity measurements.

Multinational operations have led to a shift by parent firms in the United States

toward more capital- intensive and skill- intensive domestic production. However, that

type of reallocation does not appear to have taken place in Japan or Sweden. Foreign

firms generally have higher productivity than local firms, but the evidence for spillovers

to local firms' productivity is mixed. It seems to depend on host country policies and

environments and on the technological levels of industries and of host- country firms.

Much of the growth of presently developed countries came from increases in the

scale of production and in its capital intensity. The contribution of the foreign owned

firms is mainly of knowledge, particularly knowledge of demand in the world market, and

knowledge about how the host country can find a place in the worldwide allocation of

intermediate steps in the path of production that can be geographically separated. By the

development of new product (to the host country) inward direct investment is associated

with faster economic growth, although the extent of FDI inflows and national economic

growth do not produce strong and consistent relationships.

A clear mention can be made of the fact that there are impacts of FDI on the

sending or home country of the investment as well as on the receiving or host country.

The impact of FDI on home country (outward FDI) is more favorable than that of host

country (inward FDI) because FDI benefits the home country to a large extent albeit some

disadvantages. As shown in table, listed below are the impacts of foreign direct

investment (FDI) on home and host countries.

- 8 -

2.5 Benefits and Costs of FDI to Home and Host Countries

The benefits and costs of FDI to home and host countries are listed to understand

very easily by constructing the following table.

Table-1 Benefits and Costs of FDI to Home and Host Countries

Home Country Host Country

Benefits 1. Lower prices for consumer

2. Create demand for export

3. Cost Advantages

4. New Markets

5. Exposure to other countries

6. International Relations

7. Creates new employment

8. New technology

9. Increases income

1. Increase output

2. Increase wages

3. Increase employment

4. Increase exports

5. Increase Tax revenues

6. Realization of scale economies

7. Provision of technical & managerial

skills & of new technology

8. Weakening of power of domestic

monopoly

Costs 1. National sovereignty and

national defense

2. Affect employment

1. Adverse impact on the host country’s

commodity terms of trade

2. Decreased domestic saving

3. Decreased domestic investment

4. Instability in the balance of payments

& the exchange rate

5. Loss of control over domestic policy

6. Establishment of local monopoly

7. Inadequate attention to the

development of local education and

skills

8. National sovereignty and autonomy

Source: Ma Pwint Phyu Aung (2013), Ph.D Prelim (Ba-2), "Impact of FDI on Home and

Host Countries", Assignment, Meiktila University of Economics, Mandalay, Myanmar.

There may be more or less advantages and disadvantages in Foreign Direct

Investment to both home countries and host countries. The above table mentioned the

benefits and costs of Foreign Direct Investment for Home Countries and Host countries.

- 9 -

The benefits of home countries are lower prices for consumer, create demand for

export, cost advantages, new markets, exposure to other countries, international relations,

creates new employment, new technology, and increases income. The cost of these home

countries are national sovereignty and national defense and affect employment.

On the other hand, the benefits of host countries can be calculated that are

increase output, increase wages, increase employment, increase exports, increase tax

revenues, realization of scale economies, provision of technical & managerial skills & of

new technology, and weakening of power of domestic monopoly. The cost of the host

countries are adverse impact on the host country’s commodity terms of trade, decreased

domestic saving, decreased domestic investment, instability in the balance of payments &

the exchange rate, loss of control over domestic policy, establishment of local monopoly,

inadequate attention to the development of local education and skills, and national

sovereignty and autonomy.

- 10 -

Chapter (III)

Foreign Direct Investment in Myanmar

3.1 Background of FDI in Myanmar

Myanmar had been undertaking economic reforms since 1988. Since then, the

country has officially adopted market-oriented economy and welcomed FDI inflow.

Accordingly, a series of legislation conductive to market economy have been enacted and

some of the existing laws were amended to be compatible with the changing economic

environment.

Soon after the adoption of a market-oriented economy, Myanmar foreign

Investment Law was promulgated on 30 November 1988 and Myanmar Foreign

Investment Commission was formed on 7 December 1988. Myanmar fully recognizes the

advantages of FDI for its economic development. Consequently, the government has been

actively encouraging FDI in Myanmar. Its main foreign investment policy and objectives

are as follows.

a. Adoption of a market-oriented system for allocation of resources.

b. Encouragement of private investment and entrepreneurial activity. The basic

principles of Myanmar Foreign Investment Law are as follow.

Exploitation of natural resources which require heavy investment

Acquisition of high technology

Developing production and services industries involving large capital

Creating local employment opportunities,

Developing of works which would save energy consumption and regional

investment.

3.2. Direction of FDI in Myanmar

Myanmar is a country rich in natural and human resources. It has vast cultivable

land, long coastlines, navigable river systems, abundant materials, gems, forests and a

literate population. These plus attractive incentives are expected to entice potential

foreign investors. Foreign investments from various counties have been coming into

- 11 -

Myanmar since 1989. The pattern of foreign direct investment inflows into Myanmar

from 2000-20141 is shown as follows. Data in all figures represent approval data by MIC.

Source: DICA

3.3. FDI inflows into Myanmar

The FDI inflows into Myanmar are heavily concentrated on natural resource based

and extractive industries such as power, oil and gas and mining sectors. From 1990 to

2005 total amount of FDI inflows into the country are concentrated in power sector

(81.59%). The inflows into other sectors are agriculture (0.27 %), manufacturing (1.96%)

and hotel and tourism (2.36%) which is relatively low because the country possesses

attractive features, in terms of resources may be constrained by variety of factors such as

sanctions imposed by US and EU, unfavorable exchange rates and foreign investment

laws (Myanmar Statistical Year Book, 2011).

Myanmar approved foreign investment totaling US $8.01 billion from 211

companies for the 2014-2015 fiscal year across 12 sectors, according to the Directorate of

Investment and Company Administration. Among the sectors attracting foreign direct

1 Myanamar Fiscal Year is from April to March.

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.00

20,000.00

22,000.0020

00-0

1

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

US

$ m

illi

on

Year

Figure 1 : The pattern of FDI infolws into Myanmar (2000-2014)

US $ million

- 12 -

investment during the fiscal year ending 31 March, oil and gas sector topped the list at

$3.22 billion, followed by transport and communication with approved capital of $1.68

billion and manufacturing with $1.5 billion. The real estate sector attracted $0.78 billion

while $0.36 billion was approved for the hotel and tourism sector.

Figure 2: Trend of FDI to Myanmar

Source: Selected Monthly Economic Indicators, April 2012, DICA

Table shows that DICA’s data showed approved foreign direct investment nearly

doubled from $4.1billion in fiscal 2013-2014 to $8.01 billion in 2014-2015. Myanmar

expects to receive $6 billion in the current fiscal year.

From fiscal 1988-89 to 2014-2015, the approved amount of foreign investment in

Myanmar reached a total $54.23 billion, coming from 895 permitted companies from 38

countries.

US$ million

- 13 -

3.4. Countries investing the most in Myanmar

After changing the economy from a centrally-planned economy to a market-

oriented one, the government had made a series of liberalizing measures to promote and

raise the level of investment in almost every sector of the economy, an also encouraged

private sector to participate actively in foreign direct investment activities.

After foreign investment law was enacted, the government has attracted 18 foreign

enterprises with the amount of $ 449.487 million in 1989-1990, 22 foreign enterprises

with $ 280.573 million in 1990-1991, and 4 enterprises with $ 5.893 million in 1991-

1992. In brief, FDI inflows into the country gradually increased from 1989 to 1996. But

the amount of inflows decreased continuously from the year 1996-1997 because of Asian

Financial Crisis in that year. However, the amount increased again in 2004- 2005 and

2005-2006 because of huge investment in power sector by Thailand. In 2008-2009, total

investment increased to an amount of $ 984.446 million and rose sharply again in 2011

with the amount of $ 19997.968 million. All the investments during this period are mostly

from Asia, UK and Russia. The approved amount of FDI inflows are shown in the

following table.

- 14 -

Table (1): Foreign Direct Investment in Myanmar by Country (2000 - 2014)

(US$ million)

Sr. No

Country 2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

Total

1 China 28.98 3.3 2.8 126.6 0.7 281.2

856 2.5 8269.2 4,345.73 231.77 56.92 516.90 14722.6

2 Thailand 25.75 22 29 6034.4 16.2 15 15.3 2146 1.30 489.07 165.68 8959.7

3 Singapore 36.915 6.1 81 38 39.2 226.2 418.23 2,340.12 4,297.19 7482.955

4 Hong Kong 13.229 1.5 12.9 3 6 5798.3 84.84 107.10 625.56 6652.429

5 Republic of Korea 47.222 5 0.3 34.9 37 12 -4 2676.4 25.27 37.94 81.21 299.59 3252.832

6 United Kingdom 30.612 1.5 27 273 799 99.83 232.70 156.86 850.76 2471.262

7 Malaysia 9.832 1.5 62.2 237.6 76.8 51.86 4.32 616.11 6.72 1066.942

8 Vietnam 20 18.15 329.39 142.00 175.40 684.94

9 India 47.5 137 73.00 11.50 26.04 208.89 503.93

10 The Netherland 10.30 302.40 312.7

11 Japan 4.7 2.7 1.4 3.8 -12 7.1 4.32 54.06 55.71 85.74 207.53

12 Canada 21.95 1.5 2.10 153.92 179.47

13 Russia 94 94

14 France -1.4 5.36 67.25 71.21

15 Liberia 64.60 64.6

16 Brunei 2 1.00 2.27 43.87 49.14

17 UAE 41 4.50 1.69 47.19

18 Luzibut 5.20 40.15 45.35

19 Mauritania 30.6 30.6

20 Switzerland 3.4 27.00 30.4

214.49 17.50 86.90 91.20 158.30 6,065.70 719.70 203.20 984.80 329.60 19,999.00 4,618.16 1,419.45 4,088.47 7,963.52 46,959.99

Source: Central Statistical Organization

- 15 -

Table (2): Approved Amount of Foreign Direct Investment (By Sector) (2000-2014)

(US$ million)

Sr. No

Sector 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

1 Agriculture - 138.750 9.650 20.269 39.666

2 Livestock and Fisheries 2.600 12.000 5.600 96.016 26.861

3 Mining 1.450 6.000 0.700 5.000 855.996 2.500 1396.077 19.897 15.334 32.730 6.259

4 Manufacturing 2.820 3.520 18.720 - 0.232 33.230 66.321 32.254 400.716 1826.980 1502.013

5 Power

6030.000 281.222 8218.520 4343.978 364.201 46.511 40.110

6 Oil and Gas 54.300 142.550 34.975 438.480 170.000 114.000 278.600 10179.297 247.697 309.200 3220.306

7 Construction - - - - - - - - - - - -

8 Transport and Communication

30.000 0.634 1190.232 1679.304

9 Hotel and Tourism 3.500 15.000 15.250 300.000 435.210 357.949

10 Real Estate 2.713 440.573 780.745

11 Industrial Estate - - - - - - - - - - - -

12 Other Services 14.766 18.534 357.320

Total 91.170 158.283 6,065.675 719.702 205.720 984.764 329.580 19,998.965 4,644.460 1,419.467 4,107.055 8,010.533

Source: Central Statistical Organization

- 16 -

According to the data from Central Statistical Organization, the most investing

countries in Myanmar are stated in about chart. The top investing country is the Republic

of China and the remaining countries are Thailand, Singapore, Hong Kong, Republic of

Korea, United Kingdom, Malaysia, Vietnam, India and The Netherland.

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00U

S$

Mil

lion

Country

Figure 3: Top Ten Countries Investing In Myanmar(2000-2014)

US$ million

- 17 -

A various home countries had been investing in Myanmar in many different

sectors including oil and gas, power, manufacturing, transport and communication,

mining, hotel and tourism, real and industrial estate, agriculture and livestock and

fisheries. The above chart showed the comparison of Foreign Direct Investment by sector.

Agriculture, 0.47%

Livestock and Fisheries, 0.32%

Mining, 5.32%

Manufacturing, 8.82%

Power, 43.88%

Oil and Gas, 34.49%

Transport and Communication,

6.59%

Hotel and Tourism, 2.56%

Real Estate, 2.78%

Other Services, 0.89%

Figure 4: Composition of Foreign Direct Investment

- 18 -

Table (3): Foreign Direct Investment in Myanmar (2000-2014)

US$ million

Year No of Enterprises Approved Investment

2000-01 28 214.490

2001-02 7 17.500

2002-03 9 86.900

2003-04 8 91.200

2004-05 15 158.300

2005-06 5 6,065.700

2006-07 12 719.700

2007-08 7 203.200

2008-09 5 984.800

2009-10 7 329.600

2010-11 25 19,999.000

2011-12 13 4,618.160

2012-13 94 1,419.450

2013-14 122 4,088.470

2014-15 209 7,963.520

Total 566 46,959.990

Source: Central Statistical Organization

As of the 2014-2015 fiscal year that ended on 31 March 2015, 566 existing

foreign enterprises from over 33 countries had so far invested $46.95 billion in 11 sectors,

including oil and gas, power, manufacturing, transport and communication, mining, hotel

and tourism, real and industrial estate, agriculture and livestock and fisheries.

- 19 -

3.5. Natural Resources and FDI in Myanmar

Natural resources matter to Myanmar. Myanmar has a wide variety of natural

resources distributed across the country (see Figure 5). The recorded value of exports of

gas, oil, coal, jade, gems, metals, and wood made up about 70% of national exports, or

about 10% of GDP in 2012‒13, with natural gas exports alone of $US 3.6 billion. Natural

gas revenues ‘represent the largest source of foreign income for the government’, with a

peak of 6.5 % of GDP projected in 2014‒15.

Myanmar is estimated to rank 41st in the world for proven reserves of natural gas

and 78th for proven reserves of crude oil. An Asian Development Bank assessment of the

energy sector states: ‘a total of 104 blocks are demarcated onshore (53) and offshore (51)

for oil and gas exploration and development. Proven oil reserves total 160 million barrels.

Proven gas reserves total 20.11 trillion cubic feet with huge potential for discovery’.

Natural resource-related payments comprise both tax and non-tax revenue. The

exact share of Myanmar’s revenue deriving from natural resources is difficult to measure

because 1) tax revenue collected by the IRD includes taxes paid by companies in the

extractive sector and tax payments from state-owned enterprises (SOEs), as well as taxes

not related to natural resources; 2) state owned enterprise revenues from loss-making and

profit-making enterprises are now aggregated at the level of the supervising ministry,

making it hard to tell how much loss or how much profit each enterprise makes; 3)

payments, royalties and fees collected by Union line ministries and subnational entities

are not all uniformly recorded and made public (although some are available).

(a) Overview by sector

Oversight of natural resource extraction and natural resource revenue is split

between different ministries and levels of government, according to the type of resource,

and in some cases, the value of the resource. The following section will describe formal

responsibilities and procedures for handling revenue flow by sector.

- 20 -

(b) Mining

Mining sites are distributed throughout many states/regions in Myanmar. Though

large-scale sites such as the Letpadaung copper mine in Sagaing, Moegok gem mines in

Mandalay, and Hpakant jade mines in Kachin are well-known, smaller-scale mining is

widespread and has significant local environmental, social and economic impacts.

Estimates of informal extraction in the mining sector suggest informal extraction exceeds

formal channels, and that the value of the jade market, in particular, could be much larger

than reported figures.

The Ministry of Mines includes two departments: the Department of Mines and

the Department of Geological Survey and Mineral Exploration. The Department of Mines

oversees the mining enterprises and, in future, is also to handle environmental affairs for

the Ministry of Mines. The Department of Geological Survey and Mineral Exploration is

‘responsible for mapping, prospecting, and exploration of minerals, including coal’.

(c) Minerals

The mining of minerals including coal, p copper, lead, nickel, tin, antimony, iron,

and gold, is of great relevance to both Union and state and region governments, due to

both localized environmental and social impacts and potential rapid expansion of

investment in the sector. Under the 1994 Myanmar Mines Law, the Ministry of Mines

controls all permitting for mineral extraction in Myanmar. A draft amendment to the law

is now in the Union Parliament.

The current mining law divides mining operations into ‘large scale’ and ‘small

scale’ categories. Policymakers interviewed stated that the draft amended law will include

a category for ‘medium scale’ mining, transfer the control of permits for ‘small scale’ and

artisanal mining to state/region government control, and change the structure of contracts

to foster more private investment in the sector. At the time of this publication, the law had

not yet been released.

Large-scale mines are governed by a joint-venture or production-sharing contract

between the relevant Mining Enterprise and the private mining company. These contracts

vary case-by-case. According to the Asian Development Bank’s Energy Sector Initial

Assessment, for coal ‘the average PSC provides 30% of profits for the government and

70% for the private contractor’.

- 21 -

Small-scale mine companies apply to the Ministry of Mines for licenses and pay

fees up front. Before mining begins, the Ministry of Mines collects application fees and

land rental fees known as ‘dead rent’ according to the acreage of the mine site. Ministry

of Mines officials stated that all incoming taxes and fees are collected by the relevant

department and paid on an ongoing basis by the Ministry of Mines to the Ministry of

Finance account.

(d) Gems

Gems are regulated separately from other minerals by the 1995 Myanmar

Gemstone Law and are governed by the Myanmar Gems Enterprise (MGE) under the

Ministry of Mines. Amendments to the Gemstone Law are reportedly being drafted by the

Myanmar Gems Enterprise. In the Gemstone law, royalties are stipulated ‘based on the

value assessed by the valuing body’ at 20% in the case of ruby, sapphire, jade and

diamond, with 10% for other gemstones. The valuing body is set up by the Ministry of

Mines. According to the law, ‘If a company sells raw gemstone on its own in foreign

currency, after [the] 1st sale, 10% royalty [is due] on foreign currency actual sale value’.

All high-quality gems and all grades of jade are supposed to be sold at the

Myanmar Gems and Jade Emporium, held three times a year in the capital, Nay Pyi Taw,

since 2006. A 10% tax is due on sales at the Emporium and is collected by the Myanmar

Gems Enterprise.

(e) Oil and gas

Oil and gas revenues contribute to Myanmar’s budget through both direct and

indirect channels (tax and non-tax revenue), with gas being much more significant than

oil. In 2012‒13, natural gas exports to Thailand, ‘by far the largest single commodity

sold, totaled $US 3.5 billion or 30% of total exports’ from Myanmar.

All oil and gas companies are in partnership with the state-owned Myanmar Oil

and Gas Enterprise (MOGE) under the Ministry of Energy, the majority through

production-sharing contracts. There are three oil refineries in Myanmar, run by the

Myanmar Petrochemical Enterprise (MPE). Finance officials interviewed at MOGE stated

that there is variation by contract, but that MOGE has ‘15-20% participating interest

typically’. Under the model production-sharing contract for oil made public by MOGE,

the government receives from the contractor:

- 22 -

(f) Timber

Myanmar’s most valuable timber species is teak, though there are also other

valuable species of hardwood. A ban on the export of raw timber went into effect on 1

April 2014, with the stated goal of increasing value-added processes for wood products.

The state-owned Myanmar Timber Enterprise (MTE), under the Ministry of

Environmental Conservation and Forestry, has sole extraction rights for teak, though

private companies may run teak plantations. MTE officials interviewed said that the

enterprise is responsible for ‘timber harvesting, milling, and downstream processing and

marketing of forest products,’ and certification from MTE is required for the legal export

of timber. MTE itself has three departments: extraction, marketing, and export. MTE also

enters into joint ventures with companies for wood processing. The share of revenue

received from these processing businesses depends on the specific contract, which is

negotiated case-by-case.

(g) Hydropower

Hydropower generation supplies over 70% of Myanmar’s electric power, with a

total installed capacity of 46,101 megawatts. The hydropower potential of the country’s

rivers, which drain the four main basins of Ayeyarwady, Chindwin, Thanlwin, and

Sittaung, is estimated to be more than 100,000 megawatts (MW).

Responsibility for dam projects in Myanmar is divided among several ministries

and agencies, based on the size and purpose of the dam. According to a presentation from

the Ministry of Agriculture and Irrigation in 2011, ‘hydropower projects are under

implementation by the Department of Hydropower Implementation’ under the Ministry of

Electric Power and the Department of Irrigation, under the Ministry of Agriculture and

Irrigation.

The Ministry of Electric Power is now operating 20 hydropower plants in

Myanmar, while the Ministry of Agriculture and Irrigation constructs water reservoirs and

dams for irrigation purposes. The irrigation dams sometimes include small hydropower

units. The Ministry of Agriculture and Irrigation collects ‘irrigation tax from dams and

reservoirs’.

- 23 -

There is variation in contract types. Contracts include joint ventures with foreign

investors and policy documents discuss the potential development of new sites with a

build-operate-transfer model. It is not clear from this initial review how any revenue

from exported electricity from hydropower is or would be treated, and more research is

needed on the hydropower sector in Myanmar.

- 24 -

Figure 5: Natural resources and economic zones

Source: Myanmar Peace Monitor: ‘Economic and Political Stakes’ (September 2013).

- 25 -

Chapter (IV)

Barriers and Opportunities in Myanmar

Foreign Direct Investment plays a key role in the economic development of a

country. However, to attract FDI is not as easy and simple task. A number of barriers

hinder the inflow FDI into a particular developing country, especially for a Least

Development Country (LDC). These barriers lead to increased risks and costs of foreign

investors that can outweigh the location-specific advantages and resource endowments of

LDCs. This can impede FDI inflow into the country. Foreign investors want to get

superior returns from the investment to compensate greater risks. Political instability is

one of the most important barriers to FDI.

4.1 Barriers in Administration and Policies

(a) Administration Barriers

In some LDCs countries, the problem starts at the submission of investment

proposal stage. To get an approval to start a business or investment, the proposal has to

pass different stages of official producers and require documents and consensus from

various sectors. This problem is compounded by unclear and overlapping producers on

decision making by the authorities concerned. This procedure takes several weeks and

months. These barriers can dissuade foreign visitors from making favorable investment

decisions.

The persistence of administrative barriers together with absence of institutional

capacity in LDCs in situation where trivial procedures like moving a file one department

to another and from one table to next within the same department becomes major

obstacles to progress. Complex producers and lengthy work process without transparent

and standard rules create bribes and corruption at the operational level where official and

unofficial fees are paid to higher levels. Most government tries to solve these hurdles by

creating one stop approval shops but it leads to increase additional steps because there is

no clear delegation of authority on investment.

- 26 -

(b) Policies Barriers

Policy barriers are one of the causes to concern for foreign investors who want to

invest for long term plan in the particular country. Fiscal policy, monetary policy,

exchange rate policy and debt management policy are need into account to attract Foreign

Direct Investment. Foreign investors are interested in the stability of fiscal policies in the

host country, the level of tax revenue, the structure of tax and long term stability of tax

rate applicable to corporate income and capital gains, exercise tax and tax on import,

export, value-added and tax allowance and tax exemption for export income and the size

and sustainability of budget deficits since these may impact on future operation once

investment has started. Monetary policy is the central bank of the host country.

Foreign investors are also interested in the stability of domestics' interest rate, the

level of inflation, the credit policy and the extent of government domestic borrowing.

Foreign firms concerns about the trade policy of the host country. High barriers of import

both tariff and non-tariff may be one of the reasons for choosing FDI in this country. In

practice, they want to operate in liberalized trade regime with fewer restrictions on

producers of exporting and importing. However, foreign investors may want restricted

trade policy in the countries in which they are already operated to reduce the competition

of imported products from abroad. Therefore, MNCs stand on trade liberalization depends

on their position whether they are inside or outside of the country. The stability of

exchange rate and the permission to convert any time without restriction is also a major

concern for foreign investors.

4.2 Barriers in Information, Infrastructure and Institution

(a) Information Barriers

There is no doubt that any foreign investor wants to get enough, clear information

about the country that he is going to invest before making critical investment decisions.

They want to get detailed information about market size, growth rates and changing

consumer preferences and so on. But they are also important for resource seekers because

they want to access on information on size, quality and exploitability of resources that

they are interested in. The greater is access to information, the lesser are the risk to

investors.

- 27 -

Potential investors in manufacturing sectors want detailed information about the

supply and demand conditions, situation of local firms, law and regulation on labour,

export and import procedures and so on. In fact all potential investors in any sector and

with any motive require more or less information. Therefore, the lack of data and

unreliable data make them disappoint about the country to do business. From the point of

view of host countries, that attempt to attract FDI, this mean that just showing incentives

and changing policies is no guarantee to FDI. The role of investment promotion is to

attempt to reduce information asymmetries faced by potential foreign investors in their

investment decision process. Inadequate and unreliable statistics issued by the host

country increased complexity to foreign investors to understand the real situation in the

country. Issuing out of date data returns the same effect. Therefore, if a country can

overcome these information asymmetries, collecting and establishing necessary data

bases timely and effectively distribute them to foreign investors the chance to be chosen

for FDI will be greatly enhanced.

(b) Infrastructure Barriers

Poor infrastructure barriers also hinder to invest for investor in the developing

countries. In general, poor infrastructure can lead to increased costs and risks of doing

business in that country. It can increase the costs incurred by foreign investors because

they have to bear the cost of infrastructure development such as electricity, water supply

and communication facilities. It can increase the risk for foreign investors because they

face difficulties in acquiring inputs and distribution products through the market channels

in a timely manner. Difficulties in communication and transportation are also major

hurdles for smooth business operation.

The extent to which certain barriers poses obstacles to attracting FDI is more

severe in industries such as mining and manufacturing, given additional costs that foreign

investors must assume. These deficiencies of infrastructure may outweigh the benefits of

lower labor costs and abundant resources in LDCs. They can severely limit FDI inflows

from resource seekers. For potential investor in hotel and tourism, manufacturing sectors,

inadequate infrastructure may lead to increased costs for them. Unless these costs are

compensated by additional benefits, investors don't want to invest in a particular country.

However, these infrastructure weaknesses may create opportunities for some businesses

specializing in infrastructure services such as electricity and road construction.

- 28 -

(c) Institutional Barriers

Most developing, especially LDCs, are faced with constraints involving human,

social and institutional capital. In terms of human capital, they have higher proportion of

unskilled labor and shortage of qualified and experienced managers and technicians in

these countries. The availability of human capital is a major driver of FDI. A host country

that has larger supplies of higher level man power able to absorb new skills is likely to

attract more and better quality FDI than countries without such endowment. Therefore, a

country that wants to attract FDI must considerate the above factors.

4.3 Human Resource Barriers

Social capital represents the intangible assets that as a whole in all countries have.

It takes the form of various types of traditions and taboos, informal organizations, and

trust. Social capital comprises the invisible glue that binds societies and cultures together.

The dimensions of social capital that are particular concern to foreign investors are

constitutions and form of political organization, adherence to the rule-of-law, means of

dispute resolution whether formally or informally, crime rate and major crimes happened

in the country, level and pervasive of corruption, intrinsic ability to evolve by embracing

and adapting to technological and globally induced cultural change in a manner that is

positive and constructive. Foreign investors are most concerned about the efficiency of

public institutions and their impact on the quality and responsiveness of governance.

Generally speaking, these weaknesses, including administrative barriers are disincentives

to foreign investors. In term of human capital, they have higher proportion of unskilled

labor and shortage of qualified and experienced managers and technicians in country. The

availability of human capital is a major driver in FDI. A host country that has larger

supplies of higher-level man power able to absorb new skills is likely to attract more and

better quality FDI than countries without such endowment.

- 29 -

4.4 Investment Opportunities in Resource Sectors

(a) Agriculture

The agriculture sector contributed more than 50 percent of Myanmar GDP and

about 60 percent of the total employment in 2005. The country has significant land and

water resources, low cost labor, and eco-system varieties, and is strategically located

given in proximity to markets in East Asia, Middle East, Southeast Asia and South Asia,

which allow agro-industry to become a major foreign exchange earner for the country.

Myanmar possesses a large proportion of land area in the Southeast Asian region

and over 60 different varieties of crops such as rice, wheat, maize, beans and pulses, and

oilseeds, as well as industrial crops such as cottons, jute, rubber, sugar cane, palm and

tobacco can be cultivated. Its agriculture is almost in the hands of private farmers, and

cultivation is carried out on small farms even if land ownership right is still in the hands

of the state. Given the land availability in Myanmar and the dominance of the private

sector in Myanmar's agricultural sector, prospects are high for strategic business

cooperation with foreign investors who enjoy capital and technological advantages. The

growing demand for agricultural products from industrial developed countries like Japan

and the EU, as well as staple products for developing countries like India and Bangladesh

holds a great profit potential for those who want to invest in agriculture.

(b) Livestock and fisheries

Myanmar's livestock sector consists mainly of cattle, pigs, and poultry. They are

primarily bred in rural areas, though most of them are not for commercial consumption.

Currently, a small volume of animal products are exported even as Myanmar's central

plains are suitable for commercial breeding of hardy beef cattle. This means there is a

high potential for animal breeding in the country. Even though Myanmar does not have a

well-established livestock or diary sector, it can significantly increase it has diary

production, provided there is available foreign capital and technology, which may be

combined with Myanmar's land resources and favorable climate. The availability of

pasture lands show potential for future cattle ranching with meat production and

processing.

Myanmar possesses 1930 km-long costal line, which provides great opportunities

to trade in a wide variety of marine products for export. The western Rakhine coast is

renowned for its shellfish, while the southern islands are rich in various kinds of marine

- 30 -

including fresh and frozen fish, preserved fish and shellfish. Export volume can still be

vastly increased, given the growing demand for sea products from the world market.

Fresh fish and shell fish can be exported to Japan, Singapore, Malaysia, and China while

salted fish and preserved fish can be exported to India, Bangladesh and China.

(c) Wood-based industries

Myanmar has large forest areas from which large tons of timber and forest

products like bamboo and rattan can be extracted. Myanmar is well known for its teak

resources, and it furnishes approximately 90 percent of the world's commercial teak

supply. Its forests provide more than 8,500 different plant species, including 2,300 types

of trees and 850 types of orchid, and its covers more than half of the country. Instead of

exporting these forest products in their raw forms, processed and value-added products

should be developed with foreign technology and access to international market. In this

area, foreign investment can provide not only the needed capital but also the technology

and design that can improve the marketability of value-added wood products. Wood

products such as furniture enjoy a strong demand from every foreign market. Likewise,

wood-related products like plywood and veneer can be exported to China, India,

Malaysia, Singapore, Japan and some western countries.

(d) Mineral products

Myanmar had considerable mineral resources, most of which are still unexploited.

It shows another opportunity for foreign investor. Even though the state has the sole right

to develop and extract pearls, jade, precious stones and metals, the law allows the

provision of permits to the private sector and FDI if the pursuit of a project will meet the

state's requirements. Such mining activities are commonly carried out through joint

ventures, production sharing, or purchase contracts. Combined with foreign technology

and capital, there is a potential to increase some mineral products for export such as

silver, lead, tin, ores, coal and gemstones to Japan and other neighboring countries.

Myanmar is well known for its ruby and jade in the world market and it has

considerable indigenous supplies of gold, silver, pearl, and other precious stones and

metals. Again, this sector is reserved for the state but some types of FDI may be

considered for the interest of the state. Foreign investments can also be flowed in the form

of gem cutting, processing, and relevant export services. There are major world markets

for such products and they offer attractive opportunities for foreign investors. Regional

- 31 -

countries such as China, India, Indonesia, Malaysia, and Thailand have specific expertise

in mineral prospecting, extraction, and processing. Companies from Singapore and

Thailand are now doing feasible projects in Myanmar's tin industry. China also finds

opportunities in Myanmar's mineral extraction and processing sectors.

4.5 Opportunities in Manufacturing

This sector holds promise for growth, particularly, in the area of light industries.

These include textiles, foodstuffs, pharmaceuticals, ceramics, paper and chemical.

Currently over 60 percent of all manufacturing outputs in the country fallen under food

and beverage. With FDI and private sector involvement, the manufacturing sector is

expected to increase and diversify from basic domestic industries to more export-oriented

and dynamic ones.

(a) Garment industries

Given the much lower wage rates in Myanmar than Thailand, Malaysia and even

Cambodia and its abundant labor supply, the country has attracted foreign investors to

invest in this labor-intensive industry. Indeed, investment in the manufacturing sector

generates benefits to the country. With the agreement of the Ayeyawady-Chao Phraya-

Mekong Economic Cooperation Strategy (ACMECS), new industrial zones are being set

up for garment industries in Myawadi and Pa-an near Thailand's border, which can take

advantage of cheap labor. Since, Myanmar had relatively intelligent, hardworking, not to

mention cheap labor source, it has comparative advantage in relation to other countries in

the garment sector. The major bottleneck in this sector is delay in export and complex

import procedures, which affect the lead time for exporting garments and substantially

reduce the country's competitive edge. By removing unnecessary delays in this process,

the country's competitiveness in the garment industry will be greatly improved.

(b) Electronics and IT industries

Since Myanmar enjoys high literacy rate in the region and intelligent labor that

can absorb advanced technology, electronic and IT industries are promising sectors for

FDI inflow into Myanmar. If Myanmar could improve its infrastructure requirements,

these sectors are likely to be major recipients of FDI. Japan and Korea are interested to

invest these sectors, since Myanmar has a considerable large home-based market and can

serve as an export base to highly populated neighboring countries like China and India.

- 32 -

Myanmar has already put up an IT park in Yangon and constructed IT city between

Mandalay and Pyin Oo Lwin. Government, for its part, has been undertaking intensive

infrastructure development programs in this area since 2006. This shows an opportunity

for foreign investors that want to invest in Myanmar. The major setback in this sectors are

shortage of electricity and communication networks which, however, are expected to be

removed in the coming a few years, since government is intensely pursuing hydropower

projects to fulfill electricity requirements and launching extensive communication

networks in the country. Training programs to develop highly skilled technicians are also

extended to build competency in this area.

(c) Foodstuffs and pharmaceutical industries

Since Myanmar has a large agricultural sector, which provides various crops that

serve as inputs to foodstuffs industries. Moreover, over 60 percent of domestic private

small industries in Myanmar are already concentrated in foodstuff industry. This is a very

promising opportunity for foreign investors that want to invest in this sector for export,

since most of the domestic industries only focus on the local market. The pharmaceutical

industry is also another potential area to attract FDI, since the country is short supply for

pharmaceutical products from domestic state-owned factories. Developing business

linkages with local suppliers is an important requirement for investors who want to invest

into these sectors.

- 33 -

Chapter (V)

Conclusion

5.1 Findings

To achieve a step change in FDI and get closer to meeting the economy’s large

need for investment, as well as to continue to diversify the sectors to which FDI goes,

Myanmar needs to prioritize two main areas: developing a targeted FDI strategy led by a

high-performing agency and improving Myanmar’s business environment.

One of the major themes that came up repeatedly was concern about the business

environment in the country. In light of this, Myanmar needs to focus relentlessly on

improving the environment in which businesses can operate in the country. This will be

crucial to attracting larger volumes of FDI. Countries—or even individual cities—that

have been successful in attracting large volumes of FDI have made the creation of a

business friendly environment a priority. Their experience suggests four areas that

Myanmar would need to get right to help it attract FDI:

With the enactment of the 2012 Foreign Direct Investment Law, the reforms beign

conducted in political, economic and social spheres, and the appropriate strategy to

address issues discussed in this paper and the proper amendment of FIL in line with the

changing conditions as the country becomes more matured in attracting FDI, it can be

assumed that Myanmar could be on the right track, to be able to attract the kind and

amount of FDI, it really deserves.

Many investors and embassy trade representatives indicate that concerns about

whether the rule of law is fully established and embedded into the business environment

in Myanmar is a major source of uncertainty for prospective investors. Instilling

confidence in the sanctity of contracts and ensuring that arbitration is available in the

event of disagreements are both important considerations for investors contemplating

deals with local partners and the government.

The skilled labor usage problem could be alleviated by bringing up the capacity of

local workers by improving the education system. Then it will be cost effective for the

investors to use local skilled workers since the wage rate is comparatively low related to

their foreign counterparts, who would have the same skill levels. As for the problem

regarding MIC's discretionary power, if more comprehensive, predicable and transparent

- 34 -

rules and procedures regarding foreign investments could be crafted in the future, foreign

investors' concerns as regards the issue could be reduced significantly.

The environment of a country in the broadest sense - the quality of life - is often a

factor in whether companies decide whether to locate there. A country that offers social

benefits such as health care, public safety (low crime rates and an effective police force),

schools, and a rich cultural life may be more likely to attract businesses and talented

individuals. To sum up, Foreign Direct Investment in Myanmar is still pivotal to improve

its economic development. However, there are some challenges that need to fill the gap to

attract foreign investment such as effective performance agency and business

environment. Myanmar needs to be proactive in its efforts to attract FDI, given its

potential need for investment. Any effective FDI strategy needs to start with a clear

understanding of the country’s current competitive strengths and how they might evolve.

- 35 -

5.2 Suggestions

Myanmar needs to be proactive in its efforts to attract FDI, given its potential

need for investment. Any effective FDI strategy needs to start with a clear understanding

of the country’s current competitive strengths and how they might evolve. Myanmar’s

Directorate of Investment and Company Administration (DICA) serves as its investment

promotion agency, but that function is not yet fully developed. To play this role

successfully, DICA can look at the experience of its counterparts elsewhere. These

agencies tend to have four factors in common that drive success. First, they create a

culture that is customer-focused, responsive, and flexible, and are staffed with talented

people who are able to make the case for the investments and to connect effectively with

investors. Second, they have the powers to address the concerns of investors by being

firmly embedded in the center of government. Third, they leverage prominent private-

and public-sector representatives to champion the country’s offering to investors. Finally,

they build connections between foreign investors and local firms.

According to Data interpretation, the Foreign Direct Investment has significantly

increased in the fiscal year of 2010-2011 since the new government took office in March

2011. Myanmar is ready to pursue economic growth under the name of “development”.

Government should take place continuously implementation of foreign investment law

and act the law effectively in order to come more foreign direct investment to country for

national economic growth and development.

- 36 -

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