Friday, January 31, 2014

A waiting game for Burma’s business community in 2014

Experts are predicting that 2014 will be a year of waiting for the Burmese business community, as the country’s uncertain political situation continues to put a dampener on both local and overseas investment.

President Thein Sein said this week he expects the country’s economy to grow by 9.1 percent this year, and the country has been touted as an enticing destination for investment since a nominally civilian government took power in 2011 and embraced free market-oriented reforms.

National Planning and Economic Development Minister Kan Zaw was quoted in the state-owned The Mirror newspaper on Wednesday taking a positive view of Burma’s foreign direct investment (FDI) outlook during a development conference in Naypyidaw.

According to the report, Kan Zaw highlighted growing investment from China and Thailand, and said the garment cutting, manufacturing and packing sector was doing well as a result of low wages and cheap production costs.

FDI has been growing since economic reforms began and Western countries dropped or suspended sanctions against Burma. According to the most recent figures available, the first six months of the 2013-14 fiscal year—beginning April 1—saw the government approve projects worth more than US$1.8 billion. That compares with just $1.4 billion of FDI for the whole of the 2012-13 fiscal year.

But observers say many more potential investors are still taking a cautious approach given the uncertainties around investing in Burma. All hinges on the outcome of the 2015 elections, which could have a significant impact on whether the international community continues to embrace Burma.

Myat Thin Aung, chairman of Rangoon’s Hlaing Tharyar Industrial Zone, insisted that the current political situation—especially the uncertainty over whether the 2008 Constitution will be amended to allow opposition leader Aung san Suu Kyi to become president—is a major concern of foreign firms looking to bring heavy industry investment into the country.

“Foreign investment is coming, but in the garment industry only, not to heavy industry. People know that the government doesn’t take much tax from the factory owners in the garment industry. But in heavy industry, investors are waiting until next year’s election to see whether Daw Aung San Suu Kyi can be elected or not,” he said.

Hlaing Tharyar Industrial Zone is the biggest such zone in Rangoon, and has 861 factories, mostly producing garments and largely with investment coming from China, Hong Kong and Taiwan.

“Most foreign investors say that 2015 election is important for them as they are looking out for the next government’s economic policy,” he said.

Myat Thin Aung said heavy industry investment was required to for economy to grow sustainably, as it involved longer-term investment that the garment sector.

Ye Min Oo, managing director of Burmese tycoon Tay Za’s Asian Green Development Bank agreed that 2014 will be about waiting.

“I expect that if many foreign investors are coming in this year, it means they don’t care about the Burma political situation. They will work with any government in 2016,” he said.

In sectors like banking, foreign investors must wait for legislative changes to allow them to enter. At present, foreign banks may only open representative offices, which many have done in expectation that they will be allowed a greater presence in the future.

And with the election expected in November 2015, it will not be until 2016 that potential investors are certain about the long-term future of Burmese economic policy.

“Even if the new government changes in 2015 after the election, foreign direct investment might wait until the end of 2016 to see its new economic policy,” said Ye Min Oo.

Maw Than, a retired economics professor and an advisor to the President Thein Sein, insisted that despite the risks, companies are moving into the country.

“We see such foreign investors believing recent government policy, and they can keep investing next year. But its right that economic grow depends on political stability, and some might also wait and see next government’s policy,” he said, adding that those who take the plunge early will see greater rewards.