March 21, 2017 7:00 am JST

Myanmar braces for 30% drop in foreign investment

Slump in oil, gas investment sparks push for policy reforms

MOTOKAZU MATSUI, Nikkei staff writer

A man crosses a road while vehicles stop at a traffic light, in downtown Yangon, Myanmar. © AP

YANGON -- Foreign investment in Myanmar appears poised to plunge roughly 30% for the year ending March 31 amid the absence of new oil and gas projects, highlighting the need for the government to lure other industries with deregulation and firm economic policy plans.

Myanmar received about $6 billion in foreign direct investment during the 11 months through February, an official at the Directorate of Investment and Company Administration told The Nikkei. An additional $1 billion or so is expected for March, the official said, bringing the annual total to around $7 billion for the first year-on-year drop since fiscal 2012.

Foreign investment had typically increased since Myanmar's democratization in 2011, stoked by efforts to improve ties with the international community and throw open the economy under the government headed by retired Gen. Thein Sein. But much of that money was concentrated in the energy sector, as 40-50% of investment in fiscal 2014 and fiscal 2015 flowed into oil and gas development.

Such oil and gas investment was nonexistent as of the end of February because no new gas and petroleum fields had been offered for development since the start of fiscal 2016. More money went into the communications field amid growing cellphone use as well as into manufacturing, driven by the expanding sewing industry, than in fiscal 2015. But the overall decline remains substantial, exposing the fragile foundations of a resource-dependent economy.

Policy transition

Some point out that the political handoff in March 2016 between the Thein Sein government and State Counselor Aung San Suu Kyi's National League for Democracy hampered investment. The NLD government released an initial economic policy plan in July laying out 12 priorities such as infrastructure building, but provided little detail on those points. Plans to fill out Myanmar's power infrastructure and draw investment are not yet forthcoming.

"The government is short on talent who can draw up economic policies," a diplomatic source said.

The NLD also has pledged to give greater weight to environmental impact assessments for large-scale economic development projects, and signaled that plans formulated under the previous administration for coal-fired power plants will be reviewed in light of potential environmental damage.

Those moves raised concerns among foreign energy companies that their projects could be suspended, a source at a Japanese trading house said. This "has prompted businesses to suspend their projects until they can assess the details of the new government's economic policies," the source said.

Looser rules on the way

Myanmar's struggles are not unique: A sluggish energy market has sapped investment in oil and gas worldwide. The hunt is on among resource-dependent countries to find and nurture alternative growth industries.

The NLD government in October enacted legislation to encourage foreign investment through measures such as tax incentives. Enforcement guidelines expected shortly are to significantly relax restrictions on foreign business.

A legal revision being considered this spring would lift the ban on foreign companies investing in Myanmar's businesses. Regulations in sectors such as trade and logistics likely will be loosened in fiscal 2017 or later, raising hope for renewed growth in foreign investment.

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