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Thilawa Special Economic Zone, a Myanmar-Japanese joint venture on Yangon's outskirts, was developed under the previous Thein Sein administration as a centerpiece of Myanmar’s push to attract foreign investment. (Photo by Keiichiro Asahara)
The lady in question

Is foreign investment really stalling in Myanmar?

Signs of a slowdown under new government may be only half the story

STEVE GILMORE, Contributing writer | Myanmar, Cambodia, Laos

YANGON -- Foreign direct investment is crucial to Aung San Suu Kyi's plans to build a flourishing and dynamic economy in a country that has suffered decades of mismanagement. Myanmar's colossal infrastructure needs cannot be met without the help of international capital.

Building on the previous Thein Sein administration's initiatives to further improve the investment climate was part of the economic plan on which the National League for Democracy campaigned in 2015. With the recent one-year anniversary of the NLD's accession to power, FDI inflows are under scrutiny.

The most widely used metric for judging FDI comes from the Myanmar Investment Commission. This government-appointed body approved $8 billion in foreign investment applications for the year to March 31, 2015, and over $9 billion the following year, before the NLD took power on March 30 2016. By the end of January 2017, however, investment approvals had yet to reach $6 billion.

Delays in putting a new MIC team in place after the NLD took the reins of government resulted in a 10-week hiatus, during which no investment applications were processed. Even taking this into account, the fall in approvals, widely seen as a barometer for investment appetite, has fueled criticism that the new administration has performed poorly in attracting outside investment.

Edwin Vanderbruggen is a partner at Yangon-based law firm VDB Loi, which handled almost a third of all MIC-approved foreign investments in 2016. He believes the slowdown in approvals over the last 12 months is partly due to delays in getting infrastructure projects through planning to the investment stage.

"We hoped that projects in various sectors would speed up with the new government that has a firmer mandate from [the] people," he told the Nikkei Asian Review. "Infrastructure projects are progressing slowly, mostly because the business case doesn't come together. There's been zero new power deals signed, and that is not what we were expecting."

Making large-scale infrastructure projects bankable requires agreement from the government to contractual provisions for companies with the ability to build and operate such projects. But the new administration has little experience with these often complex deals.

"That's not surprising," Vanderbruggen said. "But we have to fight hard here to get contractual provisions that are no-brainers in other countries."

Yet delays in approving infrastructure investment projects do not mean that the NLD has presided over a dramatic decline in actual foreign investment flows. Whether actual investment flows have dropped is "very hard to say," noted Vanderbruggen.

Missing numbers

Myanmar does record actual FDI flows, courtesy of MIC's sister entity the Directorate of Investment and Company Administration. These numbers show no sign of a slowdown relative to last year. In some areas, FDI looks to have increased -- investment into the hotels and tourism sector across the first nine months of the NLD government was well in excess of the same period in 2015-16, according to DICA.

Major hotel chains including Hilton Hotels and Resorts and Wyndham Hotel Group have multiple projects in the country and construction is booming in key urban and tourist areas. Data from Thailand-based consultancy C9 Hotelworks lists nine hotels expected to open in the popular Ngapali beach resort in 2017-2018 alone.

For its data across all sectors, the directorate relies on quarterly reports that companies can only deliver in hard copy to its head office in Yangon, according to Kyaw Win Tun, DICA's planning and statistics director. "Some companies have problems or can't do this," he said, adding that companies were not required by law to provide details of how much of their approved investment they have deployed. Nor does the DICA data include investment made into the Thilawa Special Economic Zone near Yangon, which is likely in the hundreds of millions. The result is that DICA's actual FDI numbers are "maybe 40%" lower than what is really flowing into Myanmar, according to Kyaw Win Tun.

The International Monetary Fund seems to agree. It is helping DICA improve its ability to track and monitor the FDI on which Myanmar's economic development depends. The fund makes its own estimates for FDI inflows, which are higher than DICA's but still much lower than the MIC approvals. These estimates are designed to include investment that goes directly into Thilawa and does not go through the MIC process. It is forecasting a slowdown in actual FDI this financial year, but only by a modest 7%, with record highs expected the following year.

The government is well aware of the need to track exact levels of foreign investment, and DICA has started on the long road to compiling data of an international standard.

"We need more staff and more capacity," said Kyaw Win Tun, adding that DICA hopes to hire almost 300 new staff this financial year, roughly double the current number of operational employees. DICA is receiving technical assistance from the IMF and from a European Union program helping countries in the Association of Southeast Asian Nations improve statistical monitoring. Coordinating with the Central Bank of Myanmar to track capital flows will also help improve FDI, say DICA officials.

Regulations accompanying Myanmar's new investment law, which was passed in 2016, should also help. Under the new law, foreign and local companies will face penalties if they fail to provide investment updates in their quarterly reports, said Kyaw Win Tun.

DICA plans to select 100 foreign companies to track as part of an FDI survey project, and begin recording investment from all foreign companies using an online database, he added. It will take several years before Myanmar is able to record FDI to the same standard as ASEAN peers such as Malaysia or Thailand. In the meantime, the true extent of FDI in Myanmar will require a generous dose of guesswork.

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