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Myanmar bullish on inflow of foreign direct investment

NAY PYI TAW September 21, 2015 1:00 am
THOUGH some foreign investors cast doubts on Myanmar's potential, the country is bullish about greater inflows of foreign direct investment in the years to come thanks mainly to infrastructure requirement.
At the Myanmar Global Investment Forum, Aung Naing Oo, director general of the Directorate of Investment and Company Registration and secretary of Myanmar Investment Commission (MIC), said Myanmar expects to welcome a significant inflow of FDI by 2017 thanks to the better legal framework, the very modernised investment law and better infrastructure.

The DICA has said, foreign investment worth US$2.9 billion has been approved in the 2015-16 fiscal year, starting April. MIC targets $6 billion in the year. In the last fiscal year, the amount hit $8.01 billion.

To achieve this, Aung Naing Oo said the government has been making efforts to create a better business climate by easing the restrictions and modernising rules and regulations over the past three years. Meanwhile, the country's infrastructure needs are huge.

Part of the modernisation concerned the consolidation of two investment laws - the Foreign Investment Law and Myanmar Citizens Investment Law - to create a level playing field. Sectors restricted to foreign ownership will be clearly defined.

Aung Naing Oo said that MIC has not yet decided on the sectors but this will depend chiefly on local business community concerns.

"But I am sure we will liberalise more in the new law and make it as little as possible for restrictions," he said.

The MIC, which deals directly with foreign investment, recently moved its office from Nay Pyi Taw to Yangon, the country's largest commercial city. A one-stop service centre was established while licensing regulations are shortened.

MIC happy to receive investors

"Before 2011, it was very difficult to engage with MIC. Some investors even gave us a nickname - Myanmar Impossible Commission. Now it is very easy to discuss with MIC. We are happy to receive investors at our office and answer all their questions," he said.

Agreeing on the issue of attraction, foreign companies' chiefs at the conference highlighted some challenges. Mark Bedingham, president and CEO of Singapore Myanmar Investco, admitted that Myanmar is attractive for investment in power, engineering, textile, and telecom sectors. To him, transparency, clarity (of laws and regulations), and government ministries' engagement with international community will help Myanmar move forward.

Michael Armstrong, director of Siward Newton, added that the national ceasefire agreement with ethnic armed groups and complete lifting of the US sanctions would be a boon to the economy.

Andrew Lee, chief country representative for Myanmar of General Electric, urged private companies to engage more with the government sector.

He suggested observing to know what is happening on the ground and then find the best ways to solve the problems. Meanwhile, government agencies need to enhance their capacity. "Engaging is the only way to help Myanmar move forward. Despite challenges, I believe the government is going towards the right direction," he said.

Stefano Poli, president of Toshiba Mitsubishi-Electric Industrial Corporation Asia, noted that energy is the most promising sector but Myanmar needs further liberalisation to attract more European investors who are aware of its natural resources but still cautious about its political climate.

Beside the power sector, Sunil Seth, country head of Tata, foresees growth in steel manufacturing, given the rising demand from construction and infrastructure projects. He urged the government to address land issues and electricity shortage urgently to attract more investors.

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Myanmar: IMF Executive Board Completes 2015 Article IV Consultation

Press Release No. 15/428 September 18, 2015

On August 28, the Executive Board of the International Monetary Fund (IMF) concluded the 2015 Article IV consultation1 with Myanmar.

Myanmar’s economic growth remains strong, but macroeconomic imbalances have increased significantly over the past year. Real GDP growth for fiscal year (FY) 2014/15 (April-March) is estimated to have reached 8.5 percent, while inflation rose to 8 percent (y/y) in May, up from 4 percent in October 2014, reflecting mainly strong domestic demand. The fiscal deficit increased to 3 percent of GDP in FY 2014/15, while credit to the private sector continued to grow strongly at 35 percent (y/y) in March, albeit lower than in FY 2013/14. The current account deficit widened to over 6 percent of GDP, largely reflecting a rapidly rising trade deficit. The official reference exchange rate came under strong downward pressure and depreciated by about 20 percent from Sept 2014 to July 2015. At end-March 2015, the Central Bank of Myanmar’s (CBM) foreign reserves covered around 3 months of imports.

The Myanmar economy is set for strong growth this year amid signs of overheating. The economy is expected to grow by 8.5 percent, reflecting strong growth momentum and expansionary macroeconomic policies. The projected increase in the fiscal deficit in the FY 2015/16 budget will provide an expansionary stimulus and contribute to strong credit growth and a rising current account deficit. With higher deficit anticipated, CBM financing of the deficit is likely to remain significant while credit growth is expected to accelerate. As a result, inflation is expected to rise further in FY 2015/16 and the current account deficit to widen.

Downside risks to growth and stability in the near term have increased, and have been amplified by recent floods. Lower natural gas prices would further reduce export earnings and government revenue, and could also lead to lower-than-expected FDI (Foreign direct investment) inflows in the medium to long run. A sharper-than-expected slowdown in China’s growth would also have a negative impact on Myanmar through the trade channel. Moreover, a tightening of monetary policy in the United States could strengthen the U.S. dollar and put renewed downward pressure on the kyat. Increasing vulnerabilities resulting from rapid credit growth, a widening current account deficit, and an expansionary budget pose increasing risks to price and external stability. Despite its overall benefits, the ongoing liberalization of the financial sector, with the admittance of new foreign banks this year also comes with risks as the CBM’s regulatory and supervisory capacity is still relatively weak. On the other hand, a well-received election outcome and peace process may provide an upside surprise, resulting in higher-than-expected FDI inflows.

Executive Board Assessment2

Executive Directors welcomed Myanmar’s strong growth momentum and the advancement of the authorities’ reform programs. Noting signs of economic overheating and the impact of the recent floods on the economy, Directors urged the authorities to strike a balance between the need to support economic recovery and reconstruction and the imperative to maintain macroeconomic stability.

Directors stressed the importance of containing the fiscal deficit to address the signs of economic overheating. At the same time, they noted that additional resources may be needed for recovery and reconstruction spending, with support from development partners. Noting the low revenue collection, large development needs, and the necessity to ensure fiscal sustainability, Directors encouraged the authorities to broaden the tax base, prepare for the introduction of a value-added tax, limit tax incentives, condition transfers to states and regions on implementation capacity, and further reprioritize expenditures. Directors welcomed the authorities’ commitment to implement the Extractive Industries Transparency Initiative Standard. While commending the authorities for launching treasury bill auctions, Directors also stressed the urgency of allowing the interest rate at T-bill auctions to rise in order to attract higher bid volumes and terminate the Central Bank of Myanmar’s (CBM) financing of fiscal deficits.

Directors encouraged the authorities to tighten monetary policy in order to reduce macroeconomic vulnerabilities arising from the signs of overheating. Given the recent floods, it was also noted that some flexibility in monetary tightening may be needed should the floods lead to a spike in demand for liquidity. The October target date for the implementation of the recalibrated reserve requirement should be maintained, and the CBM should be prepared to increase the reserve requirement and scale up deposit auctions should signs of second-round effects from food price increases on inflation emerge. Directors welcomed the recent move by the CBM to realign its reference exchange rate with the wider market exchange rates, and noted the importance of maintaining exchange rate flexibility to cushion Myanmar from exogenous shocks and maintain external competitiveness in light of its relatively high inflation.

Directors stressed that existing prudential measures should be enforced and, where needed, tightened, in order to contain credit growth and reduce financial sector risks. The CBM should speed up the issuance of remaining prudential instructions and the strengthening of its supervisory capacity, particularly in view of the entry of nine foreign banks this year. Reforming state-owned banks and strengthening the supervision of policy banks and non-bank financial institutions will also be critical to safeguarding financial stability. Directors highlighted the importance of compiling and releasing consistent financial soundness indicators and of implementing measures on anti-money laundering and combating the financing of terrorism to protect Myanmar’s correspondence bank relationships.

Directors emphasized that implementing the structural reform agenda is essential to achieve inclusive and sustainable growth. Measures should focus on further improving the business environment, financial inclusion, health services, and education. Further improvements in institutional capacity, supported by continued technical assistance, and better economic statistics will be important to enhance macroeconomic management.

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More Than 2,000 Enslaved Fishermen Rescued in 6 Months

In this Sept. 8, 2015 photo, a Burmese fisherman, center, is embraced by a friend as he leaves the port town of Ambon, Maluku province, Indonesia. More than 2,000 fishermen have been rescued this year from brutal conditions at sea, their freedom prompted by an Associated Press investigation into seafood brought to the U.S. from a slave island in eastern Indonesia. Dozens of Burmese men in the bustling port town of Ambon were the latest to go home, some more than a decade after being trafficked onto Thai trawlers. Photo: Achmad Ibrahim, AP / AP

More than 2,000 fishermen have been rescued this year from brutal conditions at sea, their freedom prompted by an Associated Press investigation into seafood brought to the U.S. from a slave island in eastern Indonesia.

Dozens of Burmese men in the bustling port town of Ambon were the latest to go home, some more than a decade after being trafficked onto Thai trawlers. Grabbing one another's hands, the men walked together toward buses last week. As they pulled away for the airport, some of those still waiting their turn to go home cheered, throwing their arms in the air.

"I'm sure my parents think I'm dead," said Tin Lin Tun, 25, who lost contact with his family after a broker lured him to Thailand five years ago. Instead of working in construction, as promised, he was sold onto a fishing boat and taken to Indonesia. "I'm their only son. They're going to cry so hard when they see me."

The reunion he envisions has played out hundreds of times since March, after the AP tracked fish — caught by men who were savagely beaten and caged — to the supply chains of some of America's biggest food sellers, such as Wal-Mart, Sysco and Kroger, and popular brands of canned pet food like Fancy Feast, Meow Mix and Iams. It can turn up as calamari at fine restaurants, as imitation crab in a sushi roll or as packages of frozen snapper relabeled with store brands that land on our dinner tables. The U.S. companies have all said they strongly condemn labor abuse and are taking steps to prevent it.

In response, a multimillion-dollar Thai-Indonesian fishing business has been shut down, at least nine people have been arrested and two fishing cargo vessels have been seized. In the U.S., importers have demanded change, three class-action lawsuits are underway, new laws have been introduced and the Obama administration is pushing exporters to clean up their labor practices. The AP's work was entered into the congressional record for a hearing, and is scheduled to be brought up for discussion again later this month.

The largest impact, by far, has been the rescue of some of the most desperate and isolated people in the world. More than 2,000 men from Myanmar, Thailand, Cambodia and Laos have been identified or repatriated since the AP's initial story ran, according to the International Organization for Migration and foreign ministries. The tally includes eight fishermen trafficked aboard a Thai cargo ship seized in neighboring Papua New Guinea.

And those returnee figures don't tell the whole story: Hundreds more have been quietly sent home by their companies, avoiding human trafficking allegations.

"We've never seen a rescue on this scale before," said Lisa Rende Taylor, an anti-trafficking expert formerly with the United Nations who now heads the anti-slavery nonprofit Project Issara. "They deserve compensation and justice."

Many experts believe the most effective pressure for change can come from consumers, whose hunger for cheap seafood is helping fuel the massive labor abuses. Southeast Asia's fishing industry is dominated by Thailand, which earns $7 billion annually in exports. The business relies on tens of thousands of poor migrant laborers, mainly from neighboring Southeast Asian countries. They often are tricked, sold or kidnapped and put onto boats that are commonly sent to distant foreign waters to poach fish.

A year-long investigation led the AP to the island village of Benjina, part of Indonesia's Maluku chain about 400 miles north of Australia. There, workers considered runaway risks were padlocked behind the rusty bars of a cage.

Men in Benjina — both those stuck on Thai fishing boats and others who had escaped into the jungle — were the first to go home when rescues led by the Indonesian government began in early April. Since then, hundreds more have been identified and repatriated from neighboring islands. Many of those leaving recently from Ambon were handed cash payments by company officials, but they said the money was a fraction of what they were owed.

An AP survey of almost 400 men underscores the horrific conditions fishing slaves faced. Many described being whipped with stingray tails, deprived of food and water and forced to work for years without pay. More than 20 percent said they were beaten, 30 percent said they saw someone else beaten and 12 percent said they saw a person die.

"My colleague, Chit Oo, fell from the boat into the water," wrote Ye Aung, 32, of Myanmar. "The captain said there was no need to search, he will float by himself later."

Another man, 18-year-old Than Min Oo, said he was not paid and wrote simply: "Please help me."

For many, the return home is bittersweet. Parents collapse in tears upon seeing their sons, and some men meet siblings born after they left. But almost all come back empty-handed, struggle to find jobs and feel they are yet another burden to their extremely poor families. At least one crowd-sourcing site, set up by Anti-Slavery International, is aimed at helping them.

A study by the London School of Hygiene and Tropical Medicine earlier this year, based on interviews with over 1,000 trafficking survivors from different industries, found half of those returning from slavery at sea suffered from depression and around 40 percent from post-traumatic stress disorder or anxiety. Those men were not connected to the Benjina cases.

Many bear physical scars as well.

Tun Lin, who returned to Myanmar last week, held up his right hand: a stump with just a thumb.

He said one finger was ripped off while he tried to wrangle an unwieldy net on the deck of his boat, and the other three were crushed beyond saving. He was taken by refrigerated cargo delivery ship to Thailand, where the remaining digits were surgically removed. Four days later, he said, he was put back on a ship bound for Indonesia, where he fished for the next three years.

"There were some good captains, but there were a lot of bad ones," the 33-year-old said, his eyes filling with tears as he described how "boat leaders" were assigned to act as enforcers, beating up fishermen who weren't working fast enough. "When we asked for our money, they'd say they didn't have it ... but then they'd go to nightclubs, brothels and bars, drinking expensive alcohol."

Like many of the men rescued from Ambon, Tun Lin had been working for PT Mabiru Industries, where operations were halted several months ago as authorities investigated trafficking and illegal fishing in the industry there. Mabiru, one of more than a dozen fishing, processing and cold storage firms in Ambon, sold packages of yellowfin tuna largely headed for Japanese markets, and also shipped to the United States. The company is shuttered and its managers could not be reached.

Florida-based South Pacific Specialties, which distributes to supermarket chains, restaurants and food groups, received a shipping container loaded with frozen tuna from Mabiru in February. Managing partner Francisco Pinto told the AP his company had once rented out Mabiru's facilities in Ambon, bought tuna from private artisanal fishermen, and hired its own workers for filleting and processing fish. Pinto said he has spent the past six weeks in Indonesia meeting and observing fish suppliers because American customers are increasingly demanding fair treatment for workers.

Amid the increased scrutiny, some have taken legal action. In the past month, three separate class-action lawsuits have been filed naming Mars Inc., IAMS Co., Proctor & Gamble, Nestle USA Inc., Nestle Purina Petcare Co. and Costco, accusing them of having seafood supply chains tainted with slave labor. Ashley Klann, a spokeswoman for the Seattle-based law firm behind several of the cases, said the litigation "came as a result of AP's reporting."

Even with the increased global attention, hundreds of thousands of men still are forced to work in the seafood industry.

"Slavery in Southeast Asia's fishing industry is a real-life horror story," said Congressman Chris Smith, R-N.J., who is among those sponsoring new legislation. "It's no longer acceptable for companies to deny responsibility ... not when people are kept in cages, not when people are made to work like animals for decades to pad some company's bottom line."


AP writer Robin McDowell contributed to this report from Yangon, Myanmar, and AP National Writer Martha Mendoza contributed from Washington, D.C., and California. Mason reported from Jakarta, Indonesia.


Twitter: @estherhtusan11, @margiemasonap, @robinmcdowell, @mendozamartha

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State-owned enterprises and the future of the Myanmar economy

Supporters react as Myanmar pro-democracy leader Aung San Suu Kyi gives a speech on voter education at the Hopong township in Shan state, Myanmar September 6, 2015.

Myanmar/Burma is in the fifth year of three immensely challenging transitions: from conflict to peace, from authoritarian to democratic rule, and from a closed to an open economy.

A perilous point in this process is rapidly approaching: the election on November 8 that will produce a new national legislature and new legislative assemblies in 14 regions and states, and a new government in the first quarter of 2016.

Ending the civil war that has raged non-stop since independence in 1948 has been the first priority of the government led by President Thein Sein that took office in March 2011. It is now on the verge of concluding a National Ceasefire Agreement designed to end active fighting and begin a “political dialogue” to produce a consensus on constitutional changes that will lay the basis for a sustainable federal political system.

The National League for Democracy, led by Aung San Suu Kyi, is poised to win most of the elected seats in the national legislature, and possibly a majority of the total seats including the 25 percent reserved for the military. The election may be sufficiently free and fair to be credible. International observer teams are already in place to monitor the campaign.

Economic growth in the past five years has been rapid, with the IMF forecasting a rise in GDP of 8.5 percent in the fiscal year ending March 2016. The benefits of growth, however, have been concentrated in the sprawling metropolitan area of Yangon/Rangoon and other urban centers. Household incomes in the rural sector remain depressed and poverty is deep in the conflict areas on Myanmar’s mountainous borders. The booming economy of Yangon has been driven by a massive influx of foreigners seeking to support and profit from Myanmar’s opening, with office rents soaring to among the highest in the world.

The Thein Sein government made some courageous economic policy decisions in its early years that underlie optimistic views of Myanmar’s prospects. In particular, it abandoned a grossly overvalued official exchange rate in April 2012 and moved to a managed float. In mid 2013, it awarded licenses to two foreign companies that are building out the mobile phone network at a record pace.

A comprehensive assessment of Myanmar’s economic prospects yields leaves little room for optimism, however.  Even if the national ceasefire is respected, the election is carried out smoothly, and a new government emerges that is distinctly less authoritarian, it seems unlikely that Myanmar will sustain its high GDP growth rate for more than a couple of years. 

A recent study of the state-owned enterprise sector hints at how difficult Myanmar’s economic transition will be. The worst chapter in Myanmar’s post-independence economic history began with General Ne Win’s coup in 1962. He adopted an extreme socialist development strategy while pursuing military campaigns to subdue and assimilate the country’s ethnic minorities. All modern businesses of significance were nationalized. The economy became in effect one enormous state-owned enterprise.  Poverty and misery increased over the next 26 years of his rule, eventually provoking the uprising in 1988 that catapulted Aung San Suu Kyi into leadership of the opposition.

The military junta that suppressed the uprising abandoned the socialist path and began privatizing state-owned enterprises. Many of the best enterprises were taken over by two military-controlled business conglomerates. Others went into the hands of a small group of cronies. At the same time a number of new state-owned enterprises were created such that in 2011 state-owned enterprises were still at the center of the Myanmar economy, especially in the sectors of energy, mining, and banking.

The Thein Sein government adopted an impressive policy of privatization, but implementation has been hobbled by weak state capacity and strong vested interests. The “Privatization Commission” that was supposed to drive reforms in this area has been moribund and no other government agency has taken a leading role. Instead, every ministry is engaged in discretionary, non-transparent actions to transfer state assets to private control, typically through long-term leases. The flagrant example of this process is leasing government land in Yangon to developers of hotels, offices, malls, and luxury apartment buildings. 

The state-owned enterprise sector will remain a drag on Myanmar’s economic progress.  Bold reforms that may be proposed by the next government will be watered down by the legislature. The military will not cede control to civilians of its most lucrative rent-seeking activities. The woefully neglected education system will not produce enough quality graduates who can become globally competitive enterprise managers. 

We can hope for a miracle: a genuinely civilian government next year that brings the civil war to an end and implements policies that raise household incomes in the rural sector where most of the population resides.  But don’t hold your breath.

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Posted by on in Business

Bank of China opens representative office in Myanmar

Li Jun, the chairman of the board supervisors of Bank of China (BOC), speaks during the opening ceremony of BOC Yangon Representative Office in Yangon, Myanmar, Sept. 14, 2015. (Xinhua/U Aung)

The Bank of China, one of the biggest state-owned commercial banks in China, opened a representative office in Yangon, the former capital city of Myanmar, adding to dozens of foreign bank offices in the country.

The entry of Bank of China into Myanmar would greatly enhance the development of the country's monetary system and contribute to the two countries' economic and monetary cooperation, said participants at the opening ceremony.

By 2009, the Bank of China stood as the second largest lender in China and the 5th largest bank in the world by market capitalization value.

The setting up of the representative office of Bank of China came a week after the Industrial and Commercial Bank of China ( ICBC) opened its branch in Yangon last Tuesday, which is the first Chinese-invested commercial bank operating in Myanmar.

Of the 43 foreign bank representative offices stationed in Myanmar, nine including ICBC were awarded service licenses in October last year, first time in more than five decades.

According to Myanmar's Investment Commission, before a bank establishes a branch in Myanmar, it has to open a representative office in the country in the first place.

Currently there are 25 local private banks and four state-owned banks in the country.

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