Monday, October 5, 2015

Outside investors wary ahead of vote

Myanmar TImes   Wednesday, 30 September 2015

Myanmar heads to the polls on November 8 with the world watching. The poll has been anticipated for months, with many people in Myanmar watching for developments – and many foreign investors staying away.

Foreign investors rushed into the country following the transition to quasi-civilian rule in 2010 and the ascension of U Thein Sein to the presidency in 2011. Some took the plunge to invest, but many others are sitting on the sidelines.

Politicians, experts and businesspeople say that political stability is crucial to continuing to attract investment. Billions of dollars in future investment may hinge on the November 8 vote.

Hopes are high that if the elections go well, it may reduce risk in the eyes of international investors, and allow in a second wave. U Ye Tun, a Pyithu Hluttaw representative from Shan State’s Hsipaw township, said he is hopeful the United States may even roll back some of the remaining sanctions if the results go well.

Investors are looking for a calmly administered jurisdiction, which will encourage greater investment, he said. “If a new government can’t administer calmly and reveal a rule of law, investment will leave and will stop,” said U Ye Tun. “This is my presumption.”
The international community accepts there is a role for the Tatmadaw to act in a post-election Myanmar, given the domestic situation. However, the new government must be able to work with the military and see it transform peacefully.

“After the election, will the resulting government calmly administer?” said U Ye Tun. “Investors from abroad know our country’s situation. The military’s administration is still overwhelming. They also understand that the commitment is still in progress.”
The government formed after the election must transition peacefully with the military, though will face a problem if the Tatmadaw cannot “politely handle” the country’s situation.

In particular, investors will be watching what role the National League for Democracy plays, given the party’s focus on the rule of law, said U Ye Tun.

Yet for all the attention on Western countries, they have historically been low investors in Myanmar. China, Hong Kong and Singapore are the sources of over 68pc of approved investment in Myanmar since 1988 – though experts say this may shift over time.

Since April 2011, a month after U Thein Sein became president, approved foreign investment has totalled about US$21 billion, compared to about $26 billion in the five years from 2006 to 2011. However, from 2006 to 2011, investment figures were dominated by a few large projects in the oil and gas and the energy sectors, representing about 90 percent of the total.

Investor interest has now been piqued in areas outside resource extraction and hydrodam construction. From April 2011 to the present, oil and gas and energy have together contributed only about 50pc of total, with manufacturing claiming 20pc and transportation and communications another 14pc of the total.

Total investment in 2014-15 was over $8 billion, the largest amount since 2010-11.

U Aung Thura, CEO of Thura Swiss consultancy, said investors are watching the election. While there had once been a rush, foreign investors went quiet with one year or six months to go before the election.

“They would rather not invest now as it is an uncertain time,” he said. U Aung Thura added there is nothing for them to lose for watching at the moment.

Investors looking to produce finished goods have many countries to choose between. Myanmar lags many of its competitors, with poor human resources and weak infrastructure, and is still an early entrant into the race to attract investment of export-oriented industry.

Investment focused on natural resource extraction tends to create fewer jobs and produce fewer goods.

U Maung Aung, an adviser of the Ministry of Commerce, said the current government has already started putting the rules and regulations into place that business needs. Foreign investment has been particularly important for the government, though it may lag other sectors such as oil and gas in total volumes.

Further foreign investors are cautious ahead of the election, as some are mulling significant investments and will not come if it is too risky.

“The election is what foreign investors have to watch over. That should be watched over actually. Some people are afraid if something would happen to the election. Foreign investments are said to be big in size as well as to have technical skill, but they won’t come if it is too risky. That’s why they are watching,” he said.

Economic and political research U Than Soe (Eco) said change is already afoot, though investment has slowed to a crawl in anticipation of the poll.

“All investment has stopped, I think, except for a few projects that have been ongoing for the last four years,” he said. “Some small investment may come of Thilawa special economic zone, for instance, but new investment won’t come for now.”

“Basically, we have to observe the election.”

U Than Soe said there are general hopes that investment picks up again after the election, and a new commitment to economic and market policy.

While most international sanctions were rolled back in the wake of the country’s transition to quasi-civilian rule in 2011, some are still in place. The United States continues to blacklist many individuals and companies, including some of the country’s largest such as Myanma Economic Holdings Limited and Myanma Economic Corporation, as well as Asia World and Htoo Group. It also blocks US sales of certain goods, particularly jade and gems.

The possibility of running into sanctions problems remains one barrier for Western companies.

Economist U Maung Maung Soe said there needs to be a focus on attracting long-term investment, as short-term capital may quickly leave and not benefit the country.

Foreign investment depends on a range on factors, with political and economic considerations at the top of the list. Still, in the hype around the election, it is important not to forget the country’s other drawbacks, such as challenges building infrastructure and poor electrification. Other debates, such as over employee wages, could be increasingly contentious in the future.

“So what do we do about these?” asked U Maung Maung Soe. “We have to discuss the potential benefits a lot. Many things are still need to improve infrastructure.”

The ASEAN Economic Community is also slated to start at the end of the year, which is set to open the door further to possible investment. Still, U Maung Maung Soe said it is important Myanmar is able to bring its standard to the regional level, or risk the unwanted investments from the rest of the region.

After the election, the government must form a stable platform for the economy, allowing demand to meet supply. U Maung Maung Soe said the current poor level of development comes from repeated state intervention – and in turn a poor economy led to state unrest.
The election needs to be watched but wouldn’t affect long-term development, he added.

While it remains to be seen what will happen with the election, the newly elected government will have a lot to handle. It must try to solve the problem of wages, with a recently imposed minimum wage of K3600 a day drawing criticism from both businesspeople and workers. It must work to improve poor infrastructure and human resources. It must create a predictable environment based on the rule of law, and find a way to main a relationship with the Tatmadaw.

Whether investment continues to flood the continue post-election remains to be seen.