The largest country in mainland Southeast Asia, Myanmar, has introduced its new investment law in April in a move to support the pro-market reform program, initiated by the government in 2012. Aiming to attract more foreign investment, the government of Myanmar is also facing challenges to boost local economy to maintain a sustainable GDP growth.
The Myanmar’s new investment law has officially begun to take effect on Apr. 1.
The new law was drafted in 2013 based on suggestions from experts and businessmen with the help of the International Finance Corporation (IFC). It was also combined with the Foreign Investment Law outlined in 2012 and the Citizens’ Investment Law drafted in 2013.
In the first week of April, the Myanmar Investment Commission (MIC) swiftly approved US$ 79.464 million worth investment from 15 foreign enterprises, bringing the total to US$ 164.375 million at the beginning of this fiscal year 2017-18.
Despite being criticized for its less achievement for economic growth in the first year of its tenure, National League for Democracy (NLD)-led government had striven to promote foreign investment last year.
In addition to forming new Investment Commission, enacting new investment law and its regulation, introducing government’s investment policy, the government also attracts the foreign investors by offering favorable income tax exemptions.
The investors will enjoy tax breaks if they invest in government’s promoted areas and sectors.
The Investment Commission designates promoted areas across nation dividing three zones based on the regional development. Three special economic zones of Kyaukphyu, Thilawa and Dawei are expected to further boost economic growth in Market Research Myanmar.
In particular, the Investment Commission also promotes sectors for investments as agricultural businesses, forestry businesses, livestock and breeding, food manufacturing except alcohol and cigarette, goods processing, infrastructure development, industrial zoning, establishing new townships, city development, construction of port, harbor and airport, logistics, power production and distribution, education service, health service, information technology, hotel and tourism, research and development of science early this month to support the government’s 12-points economic policy.
U Aung Naing Oo, Director General of Directorate of Investment and Company Administration (DICA), attributed the situation to the wait-and-see attitude on new laws and regulations by foreign investors.
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The situation will change and more investment inflow is expected when the new law takes effect, he added.
However, laws and regulations alone are not enough to bring in large amounts of foreign investments for creating job opportunities. Creation of better business environment and increase of flexibility of financial sector are also essential factors for attracting more investment, according to experts.
Boosting local economy at the same time
As experience around the world shows, foreign direct investment and natural resources alone do not guarantee equitable economic growth. To achieve this, growth needs to be more broad-based with strong linkages to the local economy.
The business sector, in particular small and medium enterprises (SMEs) can be critical in promoting more equitable growth. SMEs have great potential for creating employment, including for youth. In Vietnam and Thailand, for example, SMEs account for 77 and 78 percent of total employment, respectively.
SMEs can also play an important role in alleviating poverty in rural areas and provide local opportunities through agro-processing and other agricultural-based businesses. The creation of more businesses also means increasing the potential for tax collection and thereby creating more fiscal space to support increased public spending.
The Myanmar Business Survey, released in February, shows the country has a low density of business with an average 2.46 per 1,000 persons. By comparison, the average for least-developed countries in Asia-Pacific stands at 9.0 meanwhile for developing countries in Asia-Pacific it is 27.
There are many different reasons contributing this low average, but it clearly underscores both the importance of facilitating the creation of businesses as well as a large potential for business growth.
The survey, conducted by the Central Statistical Organisation and United Nations Development Programme, finds a relatively low density of businesses outside Yangon and Mandalay, the country’s two major economic hubs. These cities account for 32.7 percent of all businesses in the country. This suggests that unless the right policies are put in place, Myanmar risks a further concentration of economic activities in a few locations, leaving other areas increasingly marginalized.
The relative lack of businesses – and consequently economic opportunities – outside the major urban hubs can cause young people to move to the cities in search of employment, thus acting as a driver for internal migration and high urban population growth.
Involving more than 14,000 heads of business in Myanmar, the survey also highlights the low level of dynamism in the business sector in terms of start-ups. Only 16.5 percent of businesses were less than four years old. By comparison, in Vietnam 40 percent of businesses are less than five years old.
The low level of young businesses indicates a structural issue in the economy where high levels of growth do not result in new businesses being created. These are important as they tend to grow faster than the older and more established businesses and they also create more employment.
Experience from other countries has shown the importance of creating an enabling environment that allows entrepreneurs to start and grow their business.
Businesses need access to financial services, markets, inputs and electricity, and they need to be able to hire skilled labour – just to list some of the main issues. The scale of the challenge businesses face is also indicated by the country’s low ranking in the World Bank’s Doing Business index, where it ranked 170th out of 190 countries in 2017. In Asia-Pacific only Bangladesh scores lower.
A report of World Bank says an enabling environment is particularly important at this point in time, as it would allow the business sector to fully benefit from the large influx of FDI that Myanmar is experiencing. Large-scale foreign investments in Myanmar in various sectors – from telecommunications to property and tourism – offer a unique opportunity for the business sector to become part of the supply chain for these projects.
The challenge is to ensure that all new FDI has solid linkages to the local economy and for this Myanmar needs businesses that can deliver quality products.
Looking to the future, the SME sector will also be an important factor as Myanmar moves towards achieving the Sustainable Development Goals by 2030, particularly those on poverty, and decent work and economic growth. The creation of decent employment for all is likely to be a key challenge.
Source: marketresearchmyanmar.com