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Promoting Investment Climate: How to attract FDI? Presenter, Commentator, Khaing Sape Saw (Ms.) Khin Maung Nyo (Mr.) Freelance Researcher Freelance Researcher and Writer Myanmar Engineering Society (MES), 3F, Hlaing Universities Campus March 15, 2014 KGU-MARCED The 1st International Conference On Development Alternatives Kumamoto Gakuen University, JAPAN Myanmar Research Center for Economic Development

Foreign Direct Investment (FDI): Case Study on Myanmar

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Page 1: Foreign Direct Investment (FDI): Case Study on Myanmar

Promoting Investment Climate: How to attract FDI?

Presenter, Commentator,Khaing Sape Saw (Ms.) Khin Maung Nyo (Mr.)Freelance Researcher Freelance Researcher and Writer

Myanmar Engineering Society (MES), 3F, Hlaing Universities Campus March 15, 2014

KGU-MARCEDThe 1st International Conference On Development Alternatives

Kumamoto Gakuen University, JAPAN

Myanmar Research Center for Economic Development

Page 2: Foreign Direct Investment (FDI): Case Study on Myanmar

Promoting Investment Climate: How to attract FDI?

Outline• Types of FDI • Determinants of FDI• Obstacles to FDI • FDI and Socio-Economic development• Investment promotion• Myanmar : Case study on Investment Climate

Page 3: Foreign Direct Investment (FDI): Case Study on Myanmar

ObjectivesWhere the Myanmar is with regards to the FDI targets

Progress by which Myanmar is moving towards the development

Page 4: Foreign Direct Investment (FDI): Case Study on Myanmar

Types of FDI

4

Page 5: Foreign Direct Investment (FDI): Case Study on Myanmar

By Direction

Inward FDIOutward FDI

By Target

investmentMergers and AcquisitionsHorizontal FDIVertical FDI

By Motive

Resource-SeekingMarket-SeekingEfficiency-SeekingStrategic-Asset-Seeking

Types of FDI

Among types of FDI, efficiency-seeking FDI is probably the highest potential impact on development effect

Page 6: Foreign Direct Investment (FDI): Case Study on Myanmar

Determinants of FDI

Page 7: Foreign Direct Investment (FDI): Case Study on Myanmar

Determinants of FDI

Economic conditions• Markets• Resources• Competitiveness

Host country policies• Macro policies• Private sector• Trade and industry• FDI policies

MNE strategies• Risk perception• Location • Sourcing• Integration transfer

Key determinants of FDI in Host country

Page 8: Foreign Direct Investment (FDI): Case Study on Myanmar

Determinants of FDI Eclectic Paradigm Concept

John. H. Dunning (1976, 1980) introduced the FDI theory via the Eclectic Paradigm.

Eclectic Paradigm means “the multinational firm that posits three types of advantages benefiting the multinational corporation: ownership-specific (O), location-specific (L), and internalization advantages (I).”

Page 9: Foreign Direct Investment (FDI): Case Study on Myanmar

Determinants of FDI Eclectic Paradigm ConceptSelected Variables for Myanmar

• Gross domestic Product• Foreign Exchange Rate• Interest Rate• Inflation• Economy Openness• Countries official

language

• Distance (km)• Shared Border• Economic globalization• Political globalization • Social globalization

Page 10: Foreign Direct Investment (FDI): Case Study on Myanmar

Obstacles to FDI

Page 11: Foreign Direct Investment (FDI): Case Study on Myanmar

General obstacles to FDI Administrative and legal barriers • General approvals and licenses; industry specific

licenses; utility, labor, land access, clearance procedures, reporting requirements

Policy barriers • Fiscal, monetary, trade, exchange rate, debt managementInfrastructure barriers • Electricity, water supply, communications, roads, ports,

airports, etc.Institutional and human resources barriers • Health and education, social capital; public

institutions11

Page 12: Foreign Direct Investment (FDI): Case Study on Myanmar

Traditional obstacles to FDI (cited by business)• Political and economic instability• Lack of proper infrastructure• Lack of required labor skills• Difficult access to land and other assets• Absence of rule of law/corruption• Invasive red tape/high costs of doing business• Lack of performance • Incompetent partners

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Page 13: Foreign Direct Investment (FDI): Case Study on Myanmar

Obstacles to FDI : Myanmar• Political risk: entrenched interests and the future of the reform process• Ongoing conflict with ethnic minorities• Regulatory uncertainty• Poor enforcement of rules/lack of competence and impartiality of the

court system• High land and real estate prices• Insufficient level of labor skills• Lacking infrastructure• Higher costs of doing business/excessive red tape• Difficulties with expatriation of profits• Primitive financial system/lack of international accountancy standards• Ongoing sanctions• Export tax and exchange rate fluctuations• Complex import and export procedures

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Page 14: Foreign Direct Investment (FDI): Case Study on Myanmar

Important factors attracting FDI• Open economy, high growth (e.g. China, India)• Rule of law (e.g. Singapore, Thailand)• Political and economic stability (e.g. China, Singapore)• Low labor costs (e.g. ASEAN, LDCs, China, India) • Competent labor (e.g. India, Taiwan)• Natural resources (e.g. Indonesia, Myanmar, Kazakhstan)• Large market (e.g. China, India, Indonesia, AFTA)• Infrastructure facilities (e.g. Singapore, Hong Kong, Thailand)• Absence of red tape (e.g. Singapore, Hong Kong)• Trade facilitation (cross-border zones and areas, e.g. growth triangles)

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Page 15: Foreign Direct Investment (FDI): Case Study on Myanmar

FDI and Socio-Economic development

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Page 16: Foreign Direct Investment (FDI): Case Study on Myanmar

FDI can contribute to technology transfer and skills developmentFDI can contribute to Economic development but it is not a simple ways.

16

FDI and Socio-Economic developmentHypothesis

Page 17: Foreign Direct Investment (FDI): Case Study on Myanmar

1) Open economies generate development and growth

2) Country Development and growth attract FDI3) Liberalization improves efficiency.4) The national regulatory framework ensures

stability.5) National development strategies and plans must

integrate to FDI policies

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FDI and Socio-Economic developmentKey Factors

Page 18: Foreign Direct Investment (FDI): Case Study on Myanmar

6) Integration in global and regional7) Whether Risk or Benefit : take opportunity

from ASEAN Economic Community (AEC) 2015

8) Promoting domestic investment by supporting industries, clusters and finance

9) Negotiation of investment agreements and contracts

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FDI and Socio-Economic developmentKey Factors

Page 19: Foreign Direct Investment (FDI): Case Study on Myanmar

10) A proper balance between the investor and the benefits of the host country

11) Assess to Natural resources

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FDI and Socio-Economic developmentKey Factors

Page 20: Foreign Direct Investment (FDI): Case Study on Myanmar

Investment promotion

Page 21: Foreign Direct Investment (FDI): Case Study on Myanmar

Investment promotionHypothesisThe success of an investment promotionThe strategy depends on; A country’s image and proven commitment to CSR. policy coherence and consistency . Coordination and cooperation among all stakeholders. Quality and efficiency is important than size of organization.

Page 22: Foreign Direct Investment (FDI): Case Study on Myanmar

Investment promotionKey Factors

• Formulation FDI policies • Promotion and persuasion Strategies for FDI• Legal requirements for FDI• Negotiation • Institutional capacity building• Cluster between government and private sector.• Set regulatory Framework • Clear mandate• Investment facilitation• Single window system • Cut red tape 22

Page 23: Foreign Direct Investment (FDI): Case Study on Myanmar

• Political and economic stability• Rule of law and regulatory Frame work• Skilled Labor• Developed infrastructure• Favorable investment climate• Provide accurate information with

international Language

Investment promotionKey Factors

Page 24: Foreign Direct Investment (FDI): Case Study on Myanmar

Myanmar : Case study on Investment Climate

Page 25: Foreign Direct Investment (FDI): Case Study on Myanmar

Natural Gas Resources

Forest

Land Resources

Fishery Resources

Rich Natural Resources

Other Mining Products

Gold

Copper

Precious Gem Stones

Page 26: Foreign Direct Investment (FDI): Case Study on Myanmar

Economic Development Reform

• Attracting More FDI• Modifying in Trade Policy• Monetary Policy and Finance Policy• Conducting National workshops in various Economic sectors

Page 27: Foreign Direct Investment (FDI): Case Study on Myanmar

Foreign Investment Law

Page 28: Foreign Direct Investment (FDI): Case Study on Myanmar

93.53%

5.33% 0.69% 0.43% 0.01%

Power

Oil and Gas

Manufacturing

Mining

Transport

2011-2012

Source : DICA

Foreign Investment by Sector

Page 29: Foreign Direct Investment (FDI): Case Study on Myanmar

28.23%

25.66%

21.78%

21.13%

1.08% 1.04% 0.68% 0.39%

Manufactur-ing

Power

Oil and Gas

Hotel andTourism

Mining

Others

Agriculture

Fisheries

2012-2013 US$ million

Source : DICA

Foreign Investment by Sector

Page 30: Foreign Direct Investment (FDI): Case Study on Myanmar
Page 31: Foreign Direct Investment (FDI): Case Study on Myanmar

Foreign Investment by Country

Chin

a

Viet

nam

Sing

apor

e

U.K

Hong

Kon

g

Japa

n

The

Repu

blic

of K

orea Indi

a

The

Neth

erla

nds

Mal

aysia

Thai

land

Cana

da

Brun

ei

Daru

ssal

am

0

50

100

150

200

250

300

350

400

450

407.

318

329.

390

247.

810

232.

700

80.8

09

54.0

63

37.9

42

11.5

00

10.3

01

4.32

3999

9999

9999

1.30

0

1.01

0

1.00

0

China Vietnam Singapore

U.K Hong Kong Japan

The Republic of Korea

India The Netherlands

Malaysia Thailand Canada

Brunei Darussalam

US$ million

Source : DICA

Page 32: Foreign Direct Investment (FDI): Case Study on Myanmar

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• Agriculture• Fishery• Mining• Forestry• Oil & Gas

Resources

Based

• Garment• Electronic assembly lines• Footwear

Labor Intensiv

e

•Hotel & Tourism•Logistic•Real Estate

Service

• Food Processing• Seafood• Mineral Processing• Wood, Furniture • Petrol Chemical

Labor Force 37 Million

Potential HR and Potential Industry

Page 33: Foreign Direct Investment (FDI): Case Study on Myanmar
Page 34: Foreign Direct Investment (FDI): Case Study on Myanmar
Page 35: Foreign Direct Investment (FDI): Case Study on Myanmar

Issues related to SEZs/IZs• Purpose, goals and target should be addressed. • Many bodies involved and duties and responsibility unclear.• Effective strategies for Development• Flexible Procedures and regulations• Develop infrastructure• Be ensure with international trade and investment rules

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Page 36: Foreign Direct Investment (FDI): Case Study on Myanmar

MyanmarEnacted Law related to Investment

• The Union of Myanmar Special Economic Zone Law was enacted in January 2011

• The Dawei Special Economic Zone Law was also enacted in January 2011 subsequently.

• The Republic of the Union of Myanmar Foreign Investment Law (FIL) was enacted on 2 nd November 2012 (revised)

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Page 37: Foreign Direct Investment (FDI): Case Study on Myanmar

Strengths of Myanmar

Location Advantage

Natural Resources

Human Resources

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• GMS • ASEAN Community•Hub of South East Asia

• Rich Natural Resources

•Semi-skilled and skilled labours

Page 38: Foreign Direct Investment (FDI): Case Study on Myanmar

Policy considerations

• Competition Policy• Competition Policy during transition to Market economy• Action on the National Level• Action on the regional level

• Cross-border Mergers and Acquisitions and Development

• International Co-operation

• Benefitting from co-operation

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Page 39: Foreign Direct Investment (FDI): Case Study on Myanmar

Some government measures, examples in natural resources

• Australia: 30% tax on iron ore and coal mining profits to tackle climate change (75% of Australians are against it)

• Indonesia: 20% tax on raw mineral exports (caused uproar among foreign investors)

• Mongolia: 68% windfall profit tax on gold and copper and up to 50% state ownership (now rescinded)

• India: benefit-sharing with the local community (26 per cent of profits), investments in CSR (3 per cent of turnover)

• Philippines: Executive Order of the President (July 2012): balancing the rights of the state, communities and investors: rise in windfall tax and more stringent environmental protection clauses (opposed by governors)

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FDI in natural resources

Page 40: Foreign Direct Investment (FDI): Case Study on Myanmar

FDI in the power sector Opportunities continue to increase

2011_2012 : 94%

2012-2013 : 26% Long-term:

Generation Medium-term:

Transmission

Distribution Short-term:

Distributed power generation40

Page 41: Foreign Direct Investment (FDI): Case Study on Myanmar

Considerations for FDI in the power sector• Power generation should be not only for

domestic usage, but also for Export • Power is essential for development • Electricity rates should be affordable to

everyone.• Ensure proper regulation of power sector• Government Role• Contract enforcement• Ensure environmental and social sustainability• Country wide and ASEAN-wide• Manage the supply chain

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Page 42: Foreign Direct Investment (FDI): Case Study on Myanmar

Considerations for FDI in agricultural sector• Agricultural efficiency• Access to technologies and rural employment• Food security• The rights to Land access • Sustainable land use• Environmental issues• Water use• Value added products for food industries• Rural infrastructure, especially for transportation and Logistics purpose

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Page 43: Foreign Direct Investment (FDI): Case Study on Myanmar

Recommendations for FDI policy

• Labor-intensive areasInfrastructure, agriculture, electricity,

telecommunications, transport, logistics, health, other services

• Systematic rule of law • Reduce red tape• Allow 100% FDI ensuring country benefits• Integrate FDI strategies to the development plan• Diversifications FDI• Export-oriented FDI • Create better overseas market access• Proper sharing benefit in natural resources• Particular attention to social and environmental impacts• Incentives

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Development Priorities

Page 44: Foreign Direct Investment (FDI): Case Study on Myanmar

• Land ownership • Profit sharing agreement• Set up comprehensive investment promotion policy and • Set up an investment promotion agency (IPA) for its

implementation• Focus on greenfield investment• Attention on both : domestic investors and foreign investors• Develop local capacity of SMEs• Narrow gap in performance necessities• Apply competition policy

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Recommendations for FDI policy

Page 45: Foreign Direct Investment (FDI): Case Study on Myanmar

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Recommendations for FDI policyInvestment preference regimes• Market access schemes;• Tax exemptions for firms that invest in priority

sectors;• Investment and credit-risk guarantees;• Inclusion of productive capacity and infrastructure-

related provisions in International Investment Agreements;

• Dissemination of information about investment opportunities

Page 46: Foreign Direct Investment (FDI): Case Study on Myanmar

Challenges• Socio-economic and

humanitarian challenges • Weak capacity for

implementing reforms• Beginning not the end• Much still depends on

individuals not policy• Sanctions• Official Development

Assistance (ODA)• Lowest recipient of ODA

among all LDC’s, with 7.2 US$ per capita in 2010

• Kick-starting/Jump Start, Grow – SEZs, Deep Sea Ports

• Equality of opportunities not outcomes

• “Pulled Along” by China, India + ASEAN

• Poor Infrastructure• Corruption• Weak rule of law and property

rights • No independent judiciary and

lack of legal transparency• Arbitrary tax policies

Page 47: Foreign Direct Investment (FDI): Case Study on Myanmar

EXISTING CHALLENGES• International sanctions not fully removed yet• Opaque and arbitrary policymaking, including

frequent, unannounced and unwritten policy changes• Tiny financial sector and shallow domestic capital

market• Continued unpredictability in electricity supply,

especially areas outside Yangon and other major cities• Privatization• Weak educational system and unskilled workforce• Evolving system of exchange rates and foreign

exchange controls• Investments approved on a case-by-case basis

Page 48: Foreign Direct Investment (FDI): Case Study on Myanmar

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Recommendation

New Myanmar • One of Asia's final economic frontiers• Comparative advantages• Geographical location• 60-million untapped market• Numerous natural resources

Page 50: Foreign Direct Investment (FDI): Case Study on Myanmar

References

S., Lall, “Attracting Foreign Investment: New Trends, Sources and Policies, Economic Paper 31” (Commonwealth Secretariat, July 1997)

J.,Wan Cho, “Investment Promotion and Enterprise Development Bulletin for Asia and the Pacific: ESCAP Works Towards Reducing Poverty and Managing Globalization By Economic and Social Commission for Asia and The Pacific”, UN. ESCAP.

M., Proksch “Promoting FDI for Development”, UNESCAPM., Proksch “Promoting and Attracting FDI for Development : Key Messages and Areas for Technical Assistance”, UNESCAP

H., Qaqaya., “The role of competition policy in mobilizing investment and competitiveness”, UNCTAD

Myanmar Investment Policy, Directorate of Investment and Company Administration (DICA)

SEZs in Myanmar ,DICA

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