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Uncertain Economic Outlook

Myanmar economy had made great strides under former Thein Sein’s presidency, which began on March 30, 2011, when an influx of foreign investors was flowing steadily into Myanmar. The World Bank reported Myanmar economy was strong at 6.5 per cent growth in that year ending March 2013 because of strong performance in gas production, trade and agriculture. Foreign investment contributed in large part to the strong growth and optimistic outlook for the economy. FDI rose to $4.1 billion in FY2013-2014, up from the $1.4 billion in FY2012-2013, with energy, garment, information technology, and food and beverages sectors receiving most of the investment. On November 2, 2012, former President Thein Sein passed a new foreign investment law, replacing the previous Union of Myanmar Foreign Investment Law of 1988. Since then, Myanmar opened up and the influx of FDI surged to its peak in 2014-2015 with a total of over $8 billion. The country continued to achieve a record-high FDI inflow in the susequent FY2015-2016 with $9.4 billion. Myanmar received $4.6 billion FDI in FY2011-2012, and $1.4 billion in FY2012-2013; especially the oil and gas sector attracted the biggest investment, followed by transport and communications and manufacturing. In the previous financial year of 2016-2017, Singapore stood as the biggest investor in Myanmar with $3 billion. Also in 2015-2016 financial year, Singapore, which put $4.3 billion into 55 projects, topped the list of foreign investors followed by China, Myanmar’s biggest trading partner, which invested $3.3 billion.

Internally, Myanmar has seen a dramatic slowdown in key goodsproducing sectors in recent years, mainly in agriculture and agricultural processing and in the mining and manufacturing sectors. In 2016, most of the country’s economic sectors faced sharply reduced domestic and export demand levels. In another development, foreign investors are changing their interest in Myanmar, with more emphasis on the service industry and less on value-added industries such as mining and manufacturing. Nevertheless, the recent sharp decline in FDI to the country is clear evidence that foreign investors are somehow losing confidence in Myanmar economy. Myanmar economic performance has certainly been influenced by low commodity prices, but the end of the commodity cycle tells only part of the story. Despite being a particularly resource-rich country, Myanmar has generally failed to develop much-needed infrastructure and to make headway their potential downstream supply and other industries. In particular, policy uncertainty generated by the government and the resulting poor sector performance are negatively shaping the situation. Government policy decisions are impeding economic growth and discouraging foreign investment – particularly from Western industrialized countries, traditionally the major source of FDI to the country. Without improved economic growth, Myanmar’s domestic consumer growth will be limited.

Realistically speaking, the only source of growth in the near future will be a significant increase in domestic investment, especially Foreign Direct Investment, “said Sean Turnell, a professor at Macquarie University in Australia and economic advisor to the NLD. Myanmar needs to review restrictive legislation; all that leads to inefficiencies and low productivity must be withdrawn, that promotes both domestic and foreign investment must be encouraged, the country’s infrastructure must be enhanced to support growth, goods-producing primary and downstream industries must be redeveloped. Most of the country’s state assets, which are not performing, must be privatized, and control handed to the private sector. Individual freedom and true economic independence will only come by focusing on those factors that increase economic growth.

Pulling Billions out of Myanmar

Even if Myanmar has many attractive assets for investors such as, a promising economy and abundant natural resources, foreign investors do not come into Myanmar due to some opaque legal systems and a certain political instability. Myanmar often counters knotty problems, increasing social unrest (strikes and demonstrations) and structural issues in electricity supply and logistics. Foreign investors are also worried about the lack of clarity concerning policy and structural reforms.

Land Acquisition

Myanmar’s land battles are also deterring investment in a country that wants more of it. They form one of the most significant risks identified by businesses. That includes past landgrabbing by the state. Investors fear the horrors of contested ownership, with all the legal complications, financial penalties and bad publicity that it can bring. Land disputes are intensifying. Many state authorities are in conflict with local residents, farmers and landowners over the utilization of land for new investment. Constantly, increasing prices of land in Myanmar have made land ownership a serious problem for foreign investors who have difficulty in finding out the real owner.

Government Needs to Attract the Right Investors

Government has put in place various measures to encourage foreign investments, including simple tax rules, investment incentives, a better regulatory policy on competition and protection of intellectual rights. Private sector now struggles to create new opportunities, and unemployment rates are among the highest in South-east Asia (25.1 per cent in 2017). President Htin Kyaw recently announced that the government will provide up to $303 million to support business leaders and employees who have faced difficulties due to the financial crisis. Every Cloud has a Silver Lining The transition of power following the election of the National League for Democracy (NLD) at the end of January 2016 has also slowed the pace of reform, as the new government gets to grips with the task of reshaping the economic focus to consolidate growth and stability. However, as legislative changes enacted over the past year begin to take effect and global market conditions pick up, Myanmar economy should gain momentum both this year and next. GDP is forecast to expand by 7.7 per cent in FY 2017-18 and 8 per cent in FY 2018-19, according to the latest projections from the Asian Development Bank (ADB). Both the ADB but also the IMF expects foreign investment to accelerate, and early signs look positive: $1.85 billion worth of foreign direct investment (FDI) was approved by the Myanmar Investment Commission in the first quarter of FY 2017-2018. By evaluating policy options and designing appropriate policies to early eliminate these bottlenecks, Myanmar could significantly increase the positive contributions to FDI can make to Myanmar economy and avoid undesirable negative consequences. Effective action is also needed when privatization programs to improve i n f r a s t r u c t u r e c a n r e s u l t i n a concentration of market power that requires effective public oversight. Furthermore, governments need to consider ways to support local enterprises in developing the capacity needed to establish linkages with transitional cooperation affiliates in order to move beyond immediate direct effects and fully tap the indirect benefits of FDI.

Myanmar has so many positive economic growth attributes that it is difficult to believe that it cannot succeed in achieving high economic growth going forward. It is necessary to take a long hard look as to why this is occurring and then to make decisions, correct decisions to execute on the way forward. It is essential that government, business, trade unions and the people of Myanmar recognize their obligations and work towards the common economic and social goal of making this process a success.